macrocephalopod

What’s the argument against vxx?

1. It tracks 1 month VIX futures, not VIX 2. It has a pretty brutal rolldown, if you hold it for long enough you are basically guaranteed to lose money

Fair enough. If I want to be long vol and treat as “cost of doing business”, am I better off buying vix monthly calls vs owning vxx?

Not particularly. To a first approximation everything that gives you long vol exposure has a horrible drag on P&L (if there was an easy way to be long vol with less drag you would just do that and be short vol some other way, capturing the difference in drifts).

If you want some constant long vol exposure you could buy VXX, short SPY, buy VXX monthly calls and roll them, buy UVXY calls and roll them, buy SPX puts etc. You’ll do well in a crash but lose money over the long run.

There’s an interesting argument that buying *really* out of the money puts on SPY is a net benefit if you also own SPY because it cuts off the tails that really hurt your compound growth rate — this is essentially what tail risk funds like Universa are trying to do.

The Virgin VIX call buyer seeks to have a smooth PnL, and is concerned with keeping his day-to-day portfolio variance below a certain level. The Chad SPX put buyer wants an instrument that limits his max loss so he can lever up his exposure and achieve sweet geometric returns.

The Non Binary Phantasm simply shorts all forms of poorly priced risk premia in markets/relationships where operators are incentivized to sell tails to clip annual bonuses