Buy VXX to Play Volatility Not to Hedge Your Stocks

It makes me want to pull my hair out when I hear people say they bought $VXX Calls to hedge their stock exposure. Why would you do this? VXX is a derivative ETF modeled on the Volatility Index, $VIX, that (to me at least) kind of randomly uses near the money option strikes to create a momentum like statistic. Does that seem like the perfect hedge to JP Morgan, ExonnMobil or any sector ETF for that matter? Below are the 6 month, 3 month, 1 month and 1 week performance charts of the $VXX and all the major market ETF’s, $SPY, $IWM, $QQQ, $DIA. Notice which four track each other and which one is randomly moving. If you want to play swings in volatility then fine, play with the VXX, but don’t kid yourself. As a final note, based on that weekly chart at the bottom, seems to me that the trade is to sell $VXX against your Equities. Have a nice day! :)

Six Month Performance Chart
vxx 6mo

Three Month Performance Chart
vxx 3mo

One Month Performance Chart
vxx 1mo

One Week Performance Chart
vxx 1wk

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Dragonfly Capital Views Performance Through February 2013 Expiry

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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