Nick Cherney, Head of Exchange Traded Products at Janus Henderson and Pete Clarke, Global Head of Equity Derivatives Strategy at UBS split duties for a session titled Design and Trading of US and European Volatility Related ETPs at RMC today.
Cherney kicked things off giving a history of VIX related ETPs and demonstrating the tremendous growth of these markets. He also noted the VSTOXX futures market is growing, but that the size of that market is much smaller than the VIX futures market. This is a result of there being fewer exchange traded products based on VSTOXX relative to VIX.
Summing the VIX ETPs together and netting positions, it was shown that the VIX ETP market is almost never short VIX Futures contracts. VIX ETP rebalancing accounts for only 3% of daily futures volume and has never been more than 23% in a single day.
Clarke took over discussing the structure of ETPs and reviewing the performance. He attributes long ETP underperformance to the steepness of the term structure. In making a decision between being long VIX or VSTOXX looking at the term structure may help with that decision. He also showed that SPX skew has been consistently steeper than Euro Stoxx 50 skew. Finally, he showed the performance of short VIX and short VSTOXX ETPs using index data. Both have had similar drawdowns in times of higher volatility, but short VIX ETPs have dramatically outperformed short VSTOXX ETPs over time.