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A Small Rant on Volatility ETPs

This is going to be my last comment for a while on this whole $TVIX debacle.

I don't get it.

I really don't.

I have so many traders that come to me and say "I am going to stay away from options because they confuse me."

But all of a sudden you have a bunch of volatility etfs that track a derivative of SPX options implied volatility and all of a sudden it's a good idea to trade-- or, FSM forbid, "invest."

Because now, it's just "a stock that goes up or down."

You may have never traded an option in your life, but by golly these etfs are awesome when the market crashes.

Because the top is just around the corner, right?

I'm going to make this crystal clear.

If you know:

  • how implied volatility in the market works
  • how the $VIX actually calculates the $SPX
  • what the $VXV is
  • what the difference between historical volatility and implied volatility is
  • how VIX futures are not based on the VIX
  • how $VXX does not actually track the VIX
  • why $VIX futures contango exists and can adversely affect the trade
  • how CS actually says that you can lose a crapton of money on long term holdings
  • that the market can sell off but the VIX won't move
  • how leveraged funds have a natural decay towards zero that can only be fixed by reverse splits

Then by all means, trade these volatility instruments. Every single one has done exactly what it was supposed to do.

And if you got burnt playing vol instruments without knowing the above list, I have no sympathy.

But if you don't get it-- and I know about 98% of those involved in volatility instruments haven't the slightest clue-- then stick to cash.

Here's what I said about these volatility etp's at the beginning of the month:


by Steven Place

Steven Place is the founder and head trader at