Bought puts on VXX.

music selection: “Girl On Fire” — Alicia Keys

weigh-in:  211.0 +1.0

I’m getting back to my roots.  VXX suffers from terminal “contango”.  That is, it is an ETF designed with intent to track the DAILY price moves in the ^VIX volatility index.  It is horribly constructed for a long term instrument however.  It uses front and second month futures and rolls them daily.  In a normal environment, because the longer dated future will have more time value, it will be more expensive than the shorter dated future.  Thus, the fund sells a cheap asset to buy a more expensive one almost every day.  This is resulted in an ETF that loses on average 60% a year.

Certainly, it times of high volatility, the futures can go into “backwardation” with the front month future being more expensive.  This happened with COVID-19, causing the price of VXX to skyrocket.  Now that we have an uptrend back in the broad market, I’m betting the long term decay of VXX will resume.

Today I bought 12 contracts of VXX210115P00035000 for 10.49 a share.  That puts 12,590 of capital at risk (about 10% of my main trading account).  I’m targeting a 15-20% gain for exit and think that could happen as soon as 30 days.  I’ll be rolling down each time I cash out for compounding.

Devour your prey raptors!

Getting back in the contango trade

Never miss another opportunity to devour prey!

2 thoughts on “Getting back in the contango trade

  • May 11, 2020 at 8:03 pm

    Have you seen the infection numbers out of Germany, which reopened recently.

    • May 11, 2020 at 9:12 pm

      Have not. I’ve seen US numbers for US states that are reopening and there are big spikes. I am working on a more bearish COVID-19 influenced trade for tomorrow.


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