VXX and VIX OPEX

I often hear statements such that that the VXX will always dump into the VIX OPEX and one should never be long the VXX just before the VIX OPEX. While yes it is true that in the past we have seen the VXX move lower into OPEX it does not mean that it will happen on every OPEX or that it is caused by OPEX.

The VXX has moved lower on most days since it's inception in 2009 just as the SPX has moved higher on most days since 2009. This is what occurs when we are in a very long and stable bull market as we have been in since 2009. So if one were to pick any series of random days since 2009 most of the time the VXX would have moved lower on those days, just as it has done on OPEX. Now with that being said when the spot VIX is trading well below the front and near-month futures contracts (which has been most of the time in the past several years) we can see those two contracts move lower into OPEX which then drives the price of the VXX down. This, of course, can happen at any time throughout the VIX cycle.

There are times at or around the VIX OPEX when we have not seen the VXX move down into that OPEX. During the months of March, April and May of 2018 we did not see the VXX move lower into OPEX as the market had not been trending up nor the VXX trending down during those months. The VXX has been in backwardation or near backwardation during most of these months and the gap on Spot VIX to the VIX futures has been very narrow.

While I am not recommending completely ignoring the VIX futures on or around OPEX I prefer to pay much closer attention to the count on the VXX as it allows for a much more simple approach to trading the instrument.

Michael Golembesky is a senior analyst at ElliottWaveTrader covering Forex, the S&P 500 and the VIX. He contributes frequently to Avi's Market Alerts service at EWT while also hosting his own VIX Trade Alerts service and co-hosting the EWT Forex service.