VXX: Early or wrong? |

VXX: Early or wrong?

I seem to be having similar conversations with people on so many asset classes and positions, that it could seem like I’m wrong…

Two weeks ago we discussed initiating a position in VXX. Despite the contango working against you in the ETF, I believed that at roughly $25, it was undervalued, and the risk of increased volatility was worth hedging. Today, with VXX trading at just over $22 (down 10+%) it might seem that I was wrong. Certainly, for those who follow a short-term PNL statement, the position was wrong.

This goes back to our process oriented approach. VXX seems undervalued based on our measures, our mean-reversion models, etc. We need to determine whether a position is the right one for us BEFORE the trade. Often, we are early. Often, we are way early. That is one of the disadvantages of our strategies and outlook. We initiate positions before turning points, but the research and themes hold. Volatility still looks undervalued here. Complacency in the market place is getting entrenched as investors bid companies to ever higher highs based on some illusion of safety and security. We are more jaded. So for now, we have been wrong or early or whatever you want to call it. But because our process was sound and our positions unlevered and manageable, we hold on.

We are maintaining our position. Not adding, not cutting, just maintaining our original position. And waiting.

Last 5 posts by Yaron Sadan

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