The strong contango in the futures market for the VIX is not expected to relent in the next six months.
In my analysis by holding the VXX will result in an annual loss of 60 – 70% given unchanged levels of volatility in the ^VIX.
Despite the advantages we see in holding the VIX (great diversification, autoregressive predictability) we can no longer recommend holding this position as the hurdle is just too high. In fact I am strongly advocating a replacement investment in XIV. (nearly the exact opposite) This is a non-leveraged daily inverse to short duration volatility. It profits from the roll. This means that given no change in volatility levels, this instrument is expected to increase 60-70% annually.
I expect this trading opportunity to be available and worthwhile over the next 2-3 years and gradually closed with arbitrage style pricing.
Current trading volume in 444X larger in the VXX. I expect this opportunity to be available until there is some semblance of parity in the trading volume, or more precisely when the contango disappears.