We've seen a good run -- the result of a VIX that has declined from 26.66 on 6/1/12 down to six-year lows of 11.03 in March, as well as rolling futures in a contango term structure. The result has been a staggering 200% gain over the past 9 months, and a 400% gain since 11/21/2011. It seems that money has been raining from the skies!
But remember that key drivers of VIX futures ETFs are 1) change in price of the relevant VIX futures contracts and 2) the term structure. Today we saw a shift in the flattening of the term structure which should signal a very loud "caution" to you.
When it comes to trading VIX futures ETPs it is critical to watch for these changes in market structure. Consider the following graph of XIV from 2004 through 2013 (prices prior to the fund launch have been by calculating the index value using 1st and 2nd month VIX futures data).
Exiting long XIV positions when the term structure flattens before a move to backwardation, can help you avoid these losses.
Today's closing term structure:
Tomorrow's VXX forecast: no bias from roll yield. Spike risk remains elevated.: