Tuesday, May 25, 2010

Portfolio Hedging with VXX

Anyang, South Korea, Orderly Tent and UNK. sol...Image via Wikipedia
Risk aversion is high and sentiments bearish. Markets are pricing in the risk of contagion in europe as Spain just saved a local bank. War creates more fear as tensions are arising in North/South Korea and Iran/Israel with US military increasing their prescene in both region. 

One of the ETF to consider for portfolio hedging in times of volatility is VXX (the short-term futures ETN for VIX). If it crashes, this one is a potential >50% gain (though those who bought in March/April would have already gotten 100% ..

If it doesn't, the portfolio value will go up and VXX goes down .. but will likely negate and breakeven.

This trade is more for those who like to keep the portfolio intact and collect dividends but want to offset some of the losses if the market do crash.

More information can be found at http://www.ipathetn.com/VXX-overview.jsp

Some related articles about VIX by other traders/investors.

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