How to Find (VXX) Shares to Short.
71The VIX is one of the least efficient ETFs out there. But shorting it is not easy
If you anything about the iPath S&P VIX Short-Term Futures ETN (VXX), you know that it is one of the most inefficient ETFs on the market. The VXX ETN rises lock step with the VIX index. However, it tends to fall twice as fast. The result? This is an ETN that has lost almost 95% of its value since inception. However, those looking to short this ETN may find it hard. The VXX is classified by many brokerages as "Hard to Borrow." This means that the shares are simply not available for shorting. However, there are some tips on how to short the VXX as well as some hedging strategies to prevent you from being caught in a VXX short squeeze.
Wait for the Markets to Correct
Picking the right entry point for the VXX is rather simple. You simply need to wait for the market to have a drop of at least 5% in five trading days. It is then that more and more money is being poured into the VXX. And that will allow you the opportunity to short the shares. It will also help you make quick gains when the market recovers as the VXX drops like a rock.
Use Interactive Broker's Short List
Interactive Brokers has one of the best Listings for Shorts available to borrow. And you can find out how many shares of VXX are available for shorting. In fact, if you are interested in shorting VXX as a core part of your portfolio, you will have better luck with Interactive Brokers.
Hedging Strategy
While the VXX offers some of the best shorting opportunities out there, you are exposed to a giant squeeze if the market crashes. That is why it is important to hedge yourself with an offsetting ETF. Since the VIX is measured by the volatility of the S&P 500, you should hedge your VXX ETN with the Triple Short S&P 500 ETF (SPXU). Be long one share of SPXU for every short share of VXX and you will be hedged against any sudden downturn in the markets.
Summary
The volatility ETN VXX is one of the best shorting opportunities available. However, shorting the shares is not easy. Wait until there is a downturn in the market and use Interactive Broker's "Short List" to see how many shares are available for shorting. And hedge your VXX short with long positions in SPXU.
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@LRC Blogger Take a look at the VXX weekly calls. That allows you to avoid the time decay of monthly VXX calls.
LRCBlogger 13 months ago
Great info. I have thought about buying calls on the VIX has a hedging strategy for my long positions (sort of like a little insurance). I wouldn't do this just yet but possibly if the market keeps running up and gets to a point that looks like a peak.