What is the VXX and why do we care?

VXX annual performance 2009-2016

Well, we care about the VXX because we can make money with it – in a higher probability fashion than we can with some other tickers – and that’s based 7 years of data. While limited, we can glean some interesting insights into how we can make VXX work for us.

VXX is an exchange traded note that trades just like a stock would (or an ETF) during market hours. By holding VXX — it sort of continually does trades for you.

What kinds of trades?

It buys the 2nd month VIX futures contract and sells the front month VIX futures contract. In a contango up-ward slopoing term structure environment, this generally translates to buying high and selling low — which is the opposite of what you’re supposed to do to make money.

That’s why VXX always loses value – historically. Just look at a  long term chart.

To make money, shorting VXX is generally a good idea – especially during times of elevated volatility.