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I just took my first two VIX ETN trades (the symbol is VXX). I took the trades primarily to get a feel of how they trade. I like to do this as I’m like most everyone else: when there’s money at stake there’s a heightened level of awareness versus paper trading something. Also, with the market being as overbought as it was, it gave me a chance to see them move in a way which I anticipated they would potentially move (they did and that’s a good sign).

Here are my observations:

The spreads during the day can get wide (look at the intraday spreads on Tuesday as the market sold off and the VXX rose). Looking at spreads as wide as 40 cent (four tenths of 1 percent) is a bit daunting especially when I’m used to trading ETFs with 1-2 cent spreads. But as I watched the positions, many times the spreads were as low as a penny and many trades were occurring within the spreads.

As far as I know (and I may be mistaken here) there is no way yet to play the short side of volatility. I tried a number of days to borrow stock just to see if I could get it and I was unable to. This may be due to the fact that the VXX is so new, so I’ll keep trying to borrow the shares each day. It would be a shame though if they were not borrowable. This takes half the game away. If the VXX is popular though, I suspect we’ll see a short VIX ETN and then leveraged versions of them.
Volume has been six figures every day since inception so that’s also good sign.

There are all sorts of trading and hedging opportunities here combining the VXX with the SPY, SH, SSO, and SDS. The same goes with the VXX and the options on the SPY. More on this from me in the near future.

So far I like what I see. Within a week or so I’ll be adding the VXX to the Daily Battle Plan as there may be an abundance of opportunities for us to trade with this new vehicle.

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