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Thursday, October 21, 2021

An Overview of VXX Trading

What is VXX & How to Trade it?

When it comes to the stock market, there are many potential options about what to trade and how to trade certain facets of the market.

These terms can get confusing, of course, so it is vital that you understand what you are doing before you begin to make trades. One classic example is the VXX.

What is VXX and what is it composed of?

The VXX is a general index that summarizes how investors feel about the volatility of the market. However it’s not just some abstract metric: It is tradable, just like any future. 

The VXX is a volatility-based index. Generally speaking, as major stock market indexes rise, the VXX will fall. The reverse is also true. 

It is also important to understand the difference between VXX vs VIX. As noted by the financial experts at tastytrade, “The VXX is an Exchange Traded Note (ETN) that tracks the VIX short-term futures.” VIX is the index, while VXX itself is an exchange-traded note, and there is a difference between the two types.

The VXX is reflective of the Chicago Board Options Exchange Volatility Index. It moves based on the various put and call options that investors are placing. As such, it is indicative of general market expectations that investors have about the market. 

How can you trade the VIX?

Because the VXX is an index fund, there are many different options when it comes to trading the VIX. These include:

  • iPath Series B S&P 500 VIX: This specific index is a long-position index, holding first and second-month futures indexes. The insurance premium that comes with this specific index has what is known as a negative roll yield. 
  • iPath Series B S&P 500 VIX Mid-Term Futures ETN: This index is similar to the index above, but its time frame is different. As a mid-term futures index, it holds futures indexes in their fourth, fifth, sixth, and seventh-month futures. Its longer time frame extends just how long of a timeframe this specific index is dealing with, making it a less volatile index.
  • iPath S&P Dynamic VIX ETN: This index is a mix between short-term and mid-term future contracts, shifting between those two types of funds to provide investors with a mixture of the two types. The performance of this index moves with the Dynamic VIX Futures Total Return Index.
  • Proshares Short VIX Short-Term Futures ETF: This is an inverse ETF, meaning it’s a short play. It is an extremely volatile and potentially expensive fund that is designed for day traders with high-risk tolerance, as the short nature of the fund can quickly rack up losses if it moves in the wrong direction. 

Depending on your personal financial goals and tastes, trading the VXX may be an excellent way of applying your skills sets towards turning a financial profit. Make sure to do your homework first, but remember that the VXX can be a fantastic way of maximizing your profit on the stock market.



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Josie Patra
Josie Patra is a veteran writer with 21 years of experience. She comes with multiple degrees in literature, computer applications, multimedia design, and management. She delves into a plethora of niches and offers expert guidance on finances, stock market, budgeting, marketing strategies, and such other domains. Josie has also authored books on management, productivity, and digital marketing strategies.

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