Editors Note:

The Nasdaq implosion today proved that the profit taking from the post election rally was not yet over. Tech stocks were hammered and closed at the lows. Despite the decline the VXX futures ETF only gain 1 point but that was enough to stop us out of the December position. I am recommending we reload with a March position.


No New Bullish Plays


VXX - VIX Futures ETF - Company Profile


We were finally stopped out on the VXX position. This was a good thing since it was a December option. We exited with a gain and I am putting it back in the recommendation list with a longer dated option.

Original Trade Description: September 21st.

The VXX is a short-term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, they have now down four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

After the August split the ETF moved sideways for four weeks at $36. The volatility event on Sept 9th with the Dow falling -2.5% spiked the VXX from $33 to $42 in three days. That bounce has faded and it is almost back at $33. You are probably thinking, the $40 level would have been a good entry point and you are right in hindsight. However, with the market in danger of breaking down if the Fed had hiked rates, it was better to wait. Now there is nothing on the horizon to cause a spike other than normal market movement.

This is going to be a long-term position. I am not putting a stop loss on the position because long term the VXX always goes down. If we get another volatility spike we will buy another position at a higher level and then ride them both back down.

With a VXX trade at $30.00

Buy March $25 put, currently $2.55, no stop loss.