VIX Volatility Is Peaking — Why Selling VXX Makes Sense Now
Alright, let’s break down what’s happening with the VIX and the VXX as we head into the end of the year. The iPath Series B S&P 500 VIX Short-Term Futures ETN, better known as VXX, has recently been downgraded to a “Sell.” Now, this isn’t just a casual suggestion — it’s based on a few solid market observations.
First off, volatility right now is priced quite high. The VIX, which measures market fear and expected volatility, is hovering in the mid-20s — that classic “uneasy” zone. Historically, when the VIX sits around here, forward S&P 500 returns tend to be weaker. For investors, that’s a red flag that caution is warranted.
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The VXX itself is designed primarily for short-term volatility trades. It’s a tool traders use to hedge or speculate on sudden market swings. But here’s the catch: VXX tends to lose value over time due to something called “price decay,” and current conditions make it likely that this trend will continue through the year-end. Essentially, if you’re holding VXX for the long haul right now, the odds aren’t in your favor.
Technical indicators are also signaling trouble. Long-term averages for VXX are falling, and resistance levels have been identified around $41. Even with recent volume spikes, the momentum is clearly bearish. Seasonality plays a role too — historically, implied volatility tends to decline as we approach December, especially when the broader equity markets are in a bullish trend. That’s another signal suggesting that VXX may underperform in the weeks ahead.
So, what does all this mean for investors? Simply put, selling or reducing exposure to VXX could be a prudent move. It’s not just speculation; it’s based on patterns observed in historical volatility behavior, technical setups, and the natural decay embedded in these short-term futures products. While VXX can be a useful tool for traders seeking quick, tactical plays on market turbulence, holding it now for extended periods carries significant downside risk.
In summary, as we move toward the holidays, the market appears to be set for lower volatility. The VIX is elevated, technical signals are bearish, and seasonal trends all point toward a declining VXX. For anyone thinking about trading or investing in volatility products, this is a moment to be cautious and consider selling into the year-end, rather than holding on and hoping for a spike. It’s a textbook case of understanding the instrument you’re dealing with and letting historical patterns guide your decisions.
The takeaway? Right now, the VIX is “rich,” VXX is likely to drift lower, and careful positioning could help investors avoid losses while the market calms down into December.
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