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Volatility ETPs Doomed To Fail Amid Weak VIX, Futures Contango

Analyst Paul Weisbruch of Street One Financial brings us his daily fund flows update, which today points out some outflows in multiple ETFs hitting new all-time highs, along with a seemingly never-ending breakdown in VIX-linked ETPs.

Into new day after day equity highs, we continue to see some profit taking in both SPY (more than $2.2 billion out) as well as IWM (over $2.1 billion out). Speaking of SPY, there was some late week activity in now in-the-money February 230 calls as well ahead of options expiration this Friday. With SPY now trading with a $232 handle, those options bets are all but guaranteed to finish in the money at the end of this week.

Regardless, in early trading today we see more new highs in major equity indices, and corresponding new all-time lows in Long Volatility linked products like VXX and UVXY.

VXX for example is trading with a $17 (split-adjusted) handle for the first time ever today, as a combination of weak VIX prices and futures market contango continue to doom these products.

On the other end of things, we have seen some good size buyers in Emerging Markets Bonds via EMB (iShares JPM USD Emerging Markets) where more than $425 million has entered the fund lately via creations.

The iPath S&P 500 VIX Short Term Futures TM ETN (NYSE:VXX) was trading at $17.83 per share on Monday morning, down $0.38 (-2.09%). Year-to-date, VXX has declined -30.11%, versus a 3.95% rise in the benchmark S&P 500 index during the same period.

VXX currently has an ETF Daily News SMART Grade of F (Strong Sell), and is ranked #5 of 11 ETFs in the Volatility ETFs category.

Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.

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