“We have noted many times the poor structure and performanceof the iPath S&P 500 VIX Short Term Futures ETN (NYSE:VXX). But as you can see in the chart below of VXX (black) versus VIX (yellow), it has performed even worse than we could have imagined in the past three months,” Adam Warner Reports From Investor Place.

 Warner goes on to say, “Since July 21, (NYSE:VXX) has pared a jaw-dropping 45%, while VIX has lost only 20%. That’s incredible when you consider VXX should only move about half of VIX on a given day. That guideline apparently only works on days when the VIX is up, and we have not seen too many of those since July. Let’s say you were unlucky enough to own VXX back then at 27. How far would VIX, which was at 24 in mid-July, have to rally to get you back to even? The answer is pretty darn far. “

“The course of VXX is very path dependent. That is, there’s no rule that says if VIX is “X,” then VXX will go to “Y.” It depends how long it would take VIX to get to “X,” and how closely nearer-term VIX futures track the move to “X.” In other words, if futures believe VIX will stay at “X,” they will rally sharply. If they believe the move to “X” is a one-off pop that won’t sustain, they won’t track so closely. To get VXX back to that magical 27, you might need to see VIX pop to the 50s, or even the 60s. It all depends on the timing. A slower pop in VIX would ultimately work better for VXX, but of course, that also means you would need to wait longer for the VXX pop. In short, VXX sux as a trading vehicle,” Warner Writes.

See more examples of Adam Warner’s analysis: HERE

Take a look at our category on the ETF for more in-depth articles below:

VXX