At first blush, this may seem like an odd statement. Of course VXX has a price, and of course when we’re trading we care what that price is and in which direction it moves. As an absolute value, however, we can’t draw any conclusions from the price of VXX. If I tell you that VXX closed today at $25, you cannot deduce anything about the market itself. In contrast, if I tell you that VIX closed today at 25, you immediately know that the market is anticipating 25% annualized implied volatility in the SPX over the next 30 days.
Why is this important? Because it means that you cannot make any trading decisions based on a single VXX price. A VXX price of $10 should not be considered “low”, and therefore a good buy. Likewise, a VXX price of $200 should not be considered “high”. On a related note, you can’t compare the price of VXX to the value of VIX. Today VXX closed just above $9, and VIX closed at $16.32. At the end of this week, VXX will undergo a 1‐for‐4 reverse split, so if nothing else changes, VXX would be around $36, and VIX would still be in the mid‐16s. I repeat: there is no relationship between the price of VXX and the level of VIX. On any given day, they have a great tendency to move in the same direction, but that’s all.
Excerpted from Connors Research Trading Strategy Series: The VXX Trend Following Strategy. If you would like to read more about VXX or Connors Research Trading Strategy Articles please see these related articles:
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