“My research found that the price curve sloped upwards on nearly 80 percent of all trading days for futures with 30-day maturities,” professor Whaley said. “This erosion happens because the price of longer-dated futures contracts is almost always higher than the price of shorter-dated futures contracts.”
Consequently, professor Whaley suggests investors to stick to mid-term VIX exposure to help limit losses due to contango, but potential short-term gains are also diminished. The professor also suggests ticking to funds that track Total Return indices, like VXX. Furthermore, he advises investors to keep an eye on new, more efficient VIX products that reduce expenses and negative roll problems. [Father of VIX Options Enters ETF World with AccuShares]
iPath S&P 500 VIX Short-Term Futures ETN
For more information on the CBOE Volatility Index, visit our VIX category.