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I normally ignore these products, but I noticed the following, inspired by a question I got from one of my posts and started digging into the weeds. This is the Exchange Community at work.
When VXX trades below VIXM, SPX rallies. Problem is, VXX historically never traded below VIXM except on 2 occasions: around this time last year, and current.
And when the pair reverted back to historic norm VXX > VIXM, equities saw their sharpest sell off in history. This crossover & subsequent SPX move matches up to the day.
Furthermore, when looking at a chart of the VIXM/VXX ratio (bottom area red filled chart), it looks an awful lot like SPX itself:
...and now we’re at the widest VIXM/VXX spread on record, coinciding with almost near-record highs on SPX. Should VIXM fall from its suspended state of elevation, or VXX rise and reclaim its hierarchy spot, SPX will fall sharply.
And given the near term (next 1-2 months) of likely turbulence with US elections less than 30 days away, VXX could trade higher, narrow the gap vs VIXM, and ultimately revert to historic pricing norms - which would seem disastrous for SPX.
• VXX: iPath (Barclays) VIX SHORT TERM Futures ETN (holds 1st & 2nd month VIX futures).
• VIXM: ProShares VIX MID TERM Futures ETF (holds VIX futures 4-7 months out, with ⅓ in 5th and ⅓ in 6th month)
VXX’s short dated futures holdings means that it most closely tracks spot VIX - though none of... (More)