We put Long VXX idea on March 30, and since then VXX fell -56% vs VIX Index which is up +70% in the same time period.

We have experienced only the downside where VXX followed VIX down, and zero upside.

Best example of discorrelation is the performance from march 30 – June 24: VIX rose +90%, and in turn VXX fell -3.3%!.

The idea behind the trade was spot on, but the product we used did not react to VIX to an extent that we were hoping for.

We are closing this painful trade for -32.5%.



Monday • 30 March 2016 • 11:47

Vol is too low here. Suppressed to a level not seen since last October. This is where it averaged through most of the 3% range the S&P enjoyed through H1 last year.

This was however thanks to a combination of an easing of pressure points (data, China, commods) and renewed dovishness from CB’s.

We argue that this is far too complacent. For the foreseeable future global CB’s have exhausted their arsenal.

The US isn’t fully pricing another rate hike until Jan next year which does not tally at all with recent inflation and jobs data.

The ECB has raised the bar for another depo rate cut/round of easing materially with it’s last course of action.

I would argue that the Fed has materially increased the chance of a policy error. At best the FED has lost credibility after raising into a ‘transitory’ low inflation environment in Dec and refraining due to unsustainable inflation pick up 3 months later.

Outside of the US there are multiple catalysts over the rest of the year that will generate some volatility; Brexit vote, US elections, ongoing issues in China, earning season.

We would be buying Vol here as we feel it is currently artificially suppressed.

Buy VXX US below $17.60. We are looking for 30% upside with a PT of $23.15