Let’s track a $10,000 trade that takes advantage of contango, and value. The start time will arbitrarily be the first week of May and be updated every few months. It is going to be volatile 🙂
- 25% VXX (down on average 55%/year -70 -70 -18 -75 -45)
- 25% UNG (down on average 20%/year [2 -75 -47 -12 -65 +44 +13])
Update 1, June 3
I’m choosing not to include UNG because the case for it is less clear to me. Originally I included it because it would likely offset volatility. That’s not a very good reason. VXX is volatile. Might as well embrace it. So VXX is now 50% of this long term trade. So for the month of June, this trade is up 9% mainly because VXX is down 17% for the month.
Update 2, August 7
As of August 1, 2014, this portfolio is up 8%. For the sake of easy record keeping, profit loss calculations will stay the same. But for actual trading I decided to add a stop loss for when the VXX is very oversold. Unless one wants a set-and-forget system, it’s silly to remain short. So when the long term RSI or medium term RSI are around < 30, place a stop on the most recent significant high (short white line). Go short again after the rising trend line (long white line) is broken. Big uptrends are typically about 3 months long, yet price can rise almost 300%. It comes right back down again (historically), but why take the trip if there is an easy way to avoid it?