Checking Up On the VIX-Product Rookies

It's a week and a half or so into the life of AccuShares Spot CBOE VIX Fund Up Shares (VXUP) and AccuShares Spot CBOE VIX Fund Down Shares (VXDN), so it's high time to make some snap judgments!

And the verdict? They move a lot more like futures than "spot" so far. Just to review…

"The Up Share will benefit from increases in the Underlying Index and will be adversely impacted by decreases in the Underlying Index and by the Daily Amount, if any - the Down Class Share will benefit from decreases in the Underlying Index and the Daily Amount, if any and will be adversely effected by increases in the Underlying Index (both share classes subject to a maximum of 90% in either direction). The benefit to the Up Share Class is equal to the adverse impact to the Down Share Class and vice versa. Both share classes will have proportionate entitlements to Eligible Investments and any earnings thereon (as described below). Investors must choose either the Up or the Down Shares based on their individual opinion of the future direction of the Underlying Index."

But alas, it's not so simple as gaming your CBOE Volatility Index (VIX) opinion. There's an accumulated distribution that goes to the "winning" side, payable on the 15th of each month. And that distribution date appears to serve as a de facto expiration date.

Heres a five-day slice of VXUP vs. VIX. It covers the volatility drift into the long weekend, the "pop" upon the return from the holiday and an ugly Tuesday market, and then the drop in volatility on the Wednesday rally.

It was an interesting few days in VIX, but not so much in VXUP. On the other hand, here's VXUP vs. the iPath S&P 500 VIX Short-Term Futures ETN (VXX) over that same time frame.

It's not exact, but it's certainly a much closer relationship. The best description is that it's a more muted version of VXX, which I suppose has value if that persists, as it suggests it won't decline as much as VXX over time.

But that may not hold, as they're not the same thing. VXX tracks a rolling 30-day VIX future, whereas VXUP thus far trades like a future that's going to expire in the middle of the next month. So these two will presumably start to diverge soon, as well.

Again, it's very early. We don't know that this behavior will persist over the long haul. In fact, it probably won't. Right now, VXUP and VXDN are like futures with about 20 days to go. Soon they'll be like futures with two weeks, then one week, then … OK, you get the idea. As it gets closer to the 15th, they should move more with VIX itself -- right about until the distribution, at which point they will probably become VXX and inverse VXX replicas.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.