ETFs VXX and VXZ Now Expensive

Even though shares of iPath S&P 500 VIX Mid-Term Futures ETN (NYSEArca:VXZ) and iPath S&P 500 VIX Short Term Fund (NYSEArca:VXX) are trading up today, it could be a mistake to enter at this point, as shares have jumped about 30 percent since February 9, suggesting a probably pull back.

Today, a share of VXX will cost you about $36.50, and the S&P 500 opened at about 1275 and started falling. If you bought VXX today, you would have more than 30% than you would have in February and you got protected against the most certain part of the loss (the first part).

Buying cheap insurance against loss is always a good idea, but the VXX does not seem cheap to me anymore, and I've been selling. Maybe VXX will go up today, maybe it will go down. Maybe the S&P 500 will go down today. Maybe it will go up. I don't know, and neither do you. But I do know that for VXX to qualify as cheap insurance and not just speculation, it has to be cheap - and it's no longer cheap enough to buy.

The best thing to do if you're worried about volatility is to hold cash. I believe that downturns in the market will provide great opportunities for smart, contrarian investors who focus on fundamentals. Selling in to a downturn like this and overreacting by buying things like VXX or VXZ at a time like this is a bad idea. It's never to soon to stop over-reacting.

iPath S&P 500 VIX Mid-Term Futures ETN (NYSEArca:VXZ) was trading at $61.07, gaining $1.44, or 2.41 percent, as of 2:50 PM EDT. iPath S&P 500 VIX Short Term Fund (NYSEArca:VXX) was trading at $34.65, up $1.32, or 3.96 percent.




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