The Weekender starring VXX

I have a mechanical trade that I do each weekend in the $VXX ETF. The basic thesis is that this ETF experiences decay over the weekend and so I try to capture some of that by being short.

This trade is always a short. Always.

I do track various data points on the trade and here is a sampling of that data:

The expectation is that there will be some unprofitable trades at times (reality), some reflected above, but so far the gains have far outweighed them in 2012. No gain without some pain.

There are 2 basic trade approaches that I use:

  • Short the stock
  • Initiate a Bear Risk Reversal by selling an upside Call and buying a downside Put. There are weekly options, with tremendous volume, so you can implement this trade easily (sometimes for a credit !)

One additional rule that I have added in recent months is this: If the price is down 4% or more already on Friday then the trade is optional only (but will be monitored regardless).


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