Was VXX Invited To The Party?

One too many mediocre earnings reports sent stocks swooning, coupled with a “tough love” shout by one of the Fed bigwigs.  The simple reason is that stocks have run and the reasons to keep buying them are less compelling.  The big slowdown from the winter deep freeze keeps showing up in company earnings as many folks in the Midwest eastward stayed home and burned fossil fuel.

The SPX keeps looking at the 50 DMA average and does a rubber biscuit bounce off of it.  Close to the close, it is doing it again.  The remarkable move really is in the volatility products.  I should say lack of move in the volatility products.  Note the crazy term structure in VXX.

charts by www.Livevolpro.com

There is almost no bid for volatility in VXX as the short term implied volatility in the options drops below 35%.  I realize we have the holiday, but this is getting crazy low.  The reason is that the VXX cannot make a $1 move either way to save its life.  The downside is stuck because VIX is so cheap, the upside is stuck because the future premium is so rich.  VXX will move again but the market is saying not anytime soon.

The Trade:

I think the only trade now for VXX is some kind of time spread or pair of time spreads.  We have been looking at VXX time spreads in our chat room daily. We would be happy to show you how to set them up at this level.  atg