VXUP / VXDN

[atrchi]

Finally VIX ETFs with no exposure to futures roll, contango, & backwardation:
http://finance.yahoo.com/news/accushare ... 54800.html

What do the smart folks in this forum think about this?

[D1984]

Finally VIX ETFs with no exposure to futures roll, contango, & backwardation:
http://finance.yahoo.com/news/accushare ... 54800.html

What do the smart folks in this forum think about this?

The intention behind the funds is good and I hope they work out....but you know what they say about good intentions....

The main issue as I see it is what happens if plenty of people want to go long on the VIX but few want to go short on it (or vice versa)? If demand gets imbalanced like this, how will they balance out share creation/redemption in the funds vs what is happening in the VIX itself?

Beyond this, given that VIX itself isn't investable,  the whole idea of a VIX-based product without any roll costs whatsoever seems a little like "free insurance"...and almost like too good to be true. The roll cost is almost like a "premium" paid to an insurer (the insurer in this case being the person or counterparty betting against volatility rising) and most of the time the insurance will expire worthless (think homeowners insurance if your house doesn't burn down) but if a disaster strikes (or in this case, if volatility rises swiftly like in 2011 or 2008) then the "insurance" pays off big time. Why would a counterparty take the other side of the trade if he wasn't receiving any "premium"?

Maybe I'm worng; perhaps these funds will work out as designed but all of the "pure or mostly pure VIX exposure with little or no roll costs" products so far (XVZ or RMRAX, for example) have failed to deliver what they promised.

Also, see the following (and skim the comment threads on them as well since they contain a good bit of information on the flaws of these things too):

http://seekingalpha.com/article/3200626 ... p-and-vxdn

and

http://seekingalpha.com/instablog/10211 ... ix-futures

and

http://seekingalpha.com/article/3188496 ... -vxdn-work

(do check out Ctomso's comment on this one at 8:29 PM on May 17th 2015)

and

http://sixfigureinvesting.com/2010/09/h ... vxdn-work/

and

http://www.dailyspeculations.com/wordpress/?p=10313

and see if you still want to invest in these things.

Finally, if you wish you can download a backtested simulation of the underlying indices for both ETFs/ETNs from Chris Tomso's site at http://ctomso.simplesite.com/ . If this simulation is to be believed, it looks like Accushares has managed to create a turd of a product that has all the long term return of VXX (i.e. it will lose 99.9999% eventually) but with less of the upside during times of volatility spikes than VXX itself has!

Bottom line, as far as I can tell either it won't work as designed, or if it remotely works anywhere near the way it is designed, it will likely get the crap arbitraged out of it vis a vis the VIX futures. TANSTAAFL.

[D1984]

A comment to the SEC (this was made during the public comment period before the actual ETPs were launched) explaining why these things probably won't work as intended:

http://www.sec.gov/comments/sr-nasdaq-2 ... 4065-4.pdf

[MachineGhost]

Epic fail.  But hope floats eternal.

It could work like CEF's in that the premium/discount acts as an indication of sentiment.

Back in the day I had MACROshares Natural Gas Up and Natural Gas Down ETF's.  It would net out the premium/discount among the two by issuing shares of one or the other.  It had to close up shop after just a year or so.