Trading the VXX
for Outstanding
Returns
What is the VXX?
ETN (exchange traded note) representing a standard 30-day VIX
futures price.
Contract
Price
Days Remaining
VX Jan
15.90
14
VX Feb
16.90
43
VX Mar
18.15
72
VX Apr
19.40
104
What is the VXX?
VXX holds proportionate amounts of the 1st and 2nd VIX futures
contracts. Example:
Contract
Price
Days Remaining
Holding
VX Jan
15.90
14
50%
VX Feb
16.90
46
50%
VX Mar
18.15
72
VX Apr
19.40
104
Next Day
VXX must shift its holdings from the 1st into the 2nd VIX futures
contracts. Example:
Contract
Price
Days Remaining
Holding
VX Jan
15.90
13
47%
VX Feb
16.90
45
53%
VX Mar
18.15
71
VX Apr
19.40
103
Trading System
Proprietary indicator: $VXDIF
= Price of 2nd VX future - Price of nearby FX future
We use a 15 day moving average of the $VXDIF
Results
The result is an amazing 54.4 times your money
in the 3.5 year period beginning Jan 30, 2009.
Long/Short
Enter Enter Price
Date
Exit Date
Exit
Price
Days
Held
Trade
Profit
Percent
Cum
NAV
1.00
Long VXX
1/30/09
418.32
4/13/09
401.48
73
-16.84
-4.0%
0.96
Long XIV
4/13/09
0.72
5/18/10
3.69
400
+2.97
+412.5%
4.92
Long VXX
5/18/10
116.52
5/27/10
113.32
9
-3.20
-2.7%
4.79
Long XIV
5/27/10
3.91
8/5/11
11.71
435
+7.80
+199.5%
14.34
Long VXX
8/5/11
30.31
11/23/11
48.60
110
+18.29
+60.3%
22.98
11/23/11
4.99
(open)
11.82
128
+6.83
+136.9%
54.45
Long XIV
(XIV is an ETN that is a mirror image of VXX)
The LVI
Lentz Volatility Indicator (LVI) is an indicator that shows whether
volatility, as measured by actual price movements in the $SPX index,
is increasing or decreasing.
Volatility increasing
Volatility decreasing
Results
Again beginning at Jan 30, 2009, the trades
signaled by the refined approach were:
Long/Short
Enter
Date
Enter Price
Exit Date
Exit
Price
Days
Held
Trade
Profit
Percent
Cum
NAV
1.00
Long VXX
1/30/09
418.32
4/13/09
401.48
73
-16.84
-4.0%
0.96
Long XIV
4/13/09
0.72
5/4/10
4.49
386
+3.77
+523.6%
5.99
Long VXX
5/4/10
89.48
6/01/10
120.76
28
+31.28
+35.0%
8.08
Long XIV
7/13/10
4.67
8/5/11
11.71
388
+7.04
+150.7%
20.26
Long VXX
8/5/11
30.31
11/25/11
49.20
112
+18.89
+62.3%
32.88
11/25/11
4.91
(open)
11.82
126
+6.91
+140.7%
79.51
Long XIV
(A remarkable 79 times your money in 3.5 years)
Actual Results
OptionVue Clients (+70%)
Study period
ending date
Roll Yield
Each day the VXX fund must sell some of its holdings in the
nearby futures contract and buy more of the 2nd VIX futures
contract. This is called “rolling”.
Contract
Price
Days Remaining
Holding
VX Jan
15.90
13
47%
VX Feb
16.90
45
53%
VX Mar
18.15
71
VX Apr
19.40
103
Roll Yield
Each day the VXX fund must sell some of its holdings in the
nearby futures contract and buy more of the 2nd VIX futures
contract. Called “rolling”.
Normal term structure
Contract
Price
Days Remaining
Holding
VX Jan
15.90
13
47%
VX Feb
16.90
45
53%
VX Mar
18.15
71
VX Apr
19.40
103
Term Structure
Example of a backward term structure.
Backward term structure
Contract
Price
Days Remaining
Holding
VX Jan
41.60
13
47%
VX Feb
34.90
45
53%
VX Mar
29.35
71
VX Apr
27.44
103
Roll Yield
When a normal term structure exists, the roll yield is negative as
the fund must buy futures at a higher price (the 2nd contracts)
than the ones it is selling (the nearby).
Normal term structure
Contract
Price
Days Remaining
Holding
VX Jan
15.90 (selling)
13
47%
VX Feb
16.90 (buying)
45
53%
VX Mar
18.15
71
VX Apr
19.40
103
Roll Yield
When a backward term structure exists, the roll yield is positive as
the fund may sell futures at a higher price (the nearby contracts)
than the ones it is buying (the 2nd month contracts).
Backward term structure
Contract
Price
Days Remaining
Holding
VX Jan
41.60 (selling)
13
47%
VX Feb
34.90 (buying)
45
53%
VX Mar
29.35
71
VX Apr
27.44
103
Effect of Roll Yield
Normal Term Structure  Negative Roll Yield, depressing the
VXX price
Backward Term Structure  Positive Roll Yield, enhancing the
VXX price
Effect of Volatility Changes
Increasing Volatility  VXX Rises
Decreasing Volatility  VXX Falls
The Two Forces Affecting
VXX Price
1. Changing Volatility Levels
(Immediate, impactful)
2.
Roll Yield
(Subtle, slow, steady)
Warning: VXX and XIV
are volatile
Proceed at your own risk!
Example, after our clients bought in at around
10.7, the XIV dipped down to 8.1 just 5 weeks later.
Still, the use of stops is not recommended.
VXX Trading Tools Available
in the OptionVue Software
$VXDIF
$VX30
Difference between the two nearest term
VX futures
30-Day forward price of the VX futures
$VXXFV Fair value of the VXX
$XIVFV Fair value of the XIV
$VXXDRE Daily roll effect for the VXX
$XIVDRE Daily roll effect for the XIV
The Lentz Volatility Indicator
Articles on VXX Trading
Articles and materials available at:
www.optionvue.com/vxx.html
Alternative Instruments
VXX = an iPath ETN from Barclays
XIV = VelocityShares ETN from Credit Suisse
VIXY = ProShares ETF that moves like the VXX
SVXY = ProShares ETF that moves like the XIV