Daily Wrap and VXX Forecast For 4/19

These are difficult times to trade volatility with a high degree of certainty, given that the range of VIX and 7 months of VIX futures is only 2.05 points (17.15 to 19.20). The compression represents a lack of direction and takes away the ability of traders to use the roll yield of VIX ETPs to their advantage. This can be observed on the right hand side of the chart showing 7 months of VIX futures, below (from VIX Futures Data page):

I noted yesterday that "there is a good probability that [the VIX] will retrace some of those gains tomorrow but by no means does it have to, and a spike today does not rule out the possibility of another spike tomorrow." After today's action I think the same thing can be said for Friday's outlook as well. Staying in cash until we get through this choppiness can be a great decision.

VIX has closed above front month futures for 4 days in a row now so risk remains elevated. Forecast for 4/19:

Daily Wrap and VXX Forecast For 4/18

In yesterday's post I noted that the risk of a spike in VXX was quite elevated, with the needle on the VXX Spike Risk gauge approaching the red zone. Today VXX closed at 21.07 after a moderate/strong gain of +11.5%.

The term structure flattened out a bit but is still in a slight contango, producing nearly irrelevant roll yields for XIV and ZIV of +0.5% and +1.65%, respectively.




Spot VIX closed 0.1 above front month VIX futures at 16.51, making a short of VXX very risky. Given the 18% spike in VIX today there is a good probability that it will retrace some of those gains tomorrow but by no means does it have to, and a spike today does not rule out the possibility of another spike tomorrow. Generally these are the types of situations where I prefer to wait for a setup that is more predictable.

The VXX forecast for tomorrow (preview below) generally reflects a neutral bias and a reduced, but still elevated, risk of a VXX spike.