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CVOL: The Best Volatility ETF Nobody Owns

I took a fair bit of heat on June 20 when I eviscerated the idea of holding the iPath S&P 500 VIX Short-Term ETN (NYSEArca:VXX) as a hedge for your S&P exposure.

At the time, I pointed out how VIX is itself a pretty terrible measure of volatility. I argued that VXX, which tracks futures on VIX, was pretty terrible even at capturing VIX.

It turns out the timing of my post couldn't have been more, well, timely, as that same day we saw a near-historic spike in the level of VIX.

cvol_1_july_11_2013

The problem here is that because VXX is tracking futures on VIX, there's always a dampening effect.

When the VIX spiked in the morning, VIX futures traders now had to price in the likelihood that VIX would stay at that inflated level, and since VIX itself is generally mean-reverting, the futures market usually bets for a return to the mean, and VIX futures didn't spike nearly as fast or as high as VIX itself did.

So how could investors actually get something approaching the level of VIX if they were magically prescient, read my post before the open, considered me an idiot and then piled into something to hedge their portfolio?

CVOL.

If you haven't heard of CVOL, you can be forgiven.

The C-Tracks City Volatility ETN (NYSEArca:CVOL) rated a D-51 in our analytics system- a level of "DO NOT BUY THIS" scoring that relegates it to the bottom of pretty much anyone's list. It rates so poorly for good reasons:It's expensive, at 1.15 percent. It has just over $2.5 million in assets, making it a coin flip as to whether it will even stay in business. It trades at 2 percent spreads, and just $100,000 a day, on average, changes hands. By really any rational assessment, it's pretty much unownable.

And it does exactly what volatility chasers want out of an ETP when the vol spiked. Here it is over the whole roller-coaster ride last month:

Cvol_3_july_11_2013

Don't forget to check IndexUniverse.com's ETF Data section.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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