Hedging Your Long Position with the VXX
One of the ways to hedge short SPY positions is by shorting the VXX (the VIX ETN). If the market continues to rise, the VXX is likely to drop.
Eventually there will be an inverse VIX ETN. In the meantime until one is launched, you have to short the VXX itself. Until yesterday that was not possible at most firms, but I received an email from a trader who told me he was able to short VXX yesterday through TradeStation. Assuming TradeStation does have the VXX to borrow and it’s marginable (both are required) you now have another way to hedge short SPY positions. Inversely, going long the VXX allows you to hedge long SPY positions.
As more brokerage firms make shorting the VXX available, I’ll discuss the many different ways to trade the VXX both directionally and using it to hedge your positions in the future. There’s a lot of potential upside here and as time passes many professional traders will be using the VXX more and more. It’s a product that’s well worth learning more about and how to trade.
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Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.