I know it's easy to look at a chart and say man what a POS (and it is) and think about the money people made shorting it and buying puts.
However, VXX has only existed during an incredible Fed driven bull market. We don't really know how it will behave in a bear market. But in the 2011 market correction which was an ordinary about 20% drop, VXX more than tripled and a bunch of people who were short were literally destroyed (financially anyway). The US has been running in incredible boom and bust cycles for years and we may be coming on to the next bust. Would not be shocked at a 200% increase in VXX and 80% drop in SVXY.
I also don't think it's accurate to say this is a Fed driven bull market. It's just a bull market. Bears can't understand bull markets and they always look for some rationale for why the market keeps going up. This time around it's the Fed. And when the market does crash the bears also have a rationale to offer: we were in a bubble, stocks were over-valued, etc. etc.
Somebody pays a few million for a Picasso, is it over-valued? Don't think so.
Stocks are looking pretty cheap right now. I don't see anything trading for 30 million a share!
doubt we are anywhere near the next bust. if we were the Yahoo message boards wouldn't be flooded with people saying we were, they'd all be converted bulls by now saying the market can go nowhere but up.
I would never short anything, but I don't think what you are saying is applicable to people who take position size into consideration. They will make sure their position size is such that they can't wipe out their accounts.
For me long term puts seem the best way to play it, because I understand the risk there better.
You can download daily closing values for the past five years for the VIX Short Term Futures Inverse Daily Index from the S&P Dow Jones Indices website. The VIX Short Term Futures Inverse Daily Index is the same index tracked by SVXY.
In a previous post I mentioned the following notable drops in the VIX Short Term Futures Inverse Daily Index based on daily closing values since 2008:
(1) The Index closed at 120,998.36 on May 19, 2008 and then plummeted to a trough of 20,441.838 on November 20, 2008. During this 6-month period of time, the Index lost about 83.1% of its value;
(2) The Index closed at a value of 108,307.84 on April 23, 2010 and dropped to a value of 50,931.994 on May 20, 2010. During this 1-month period of time, the Index lost about 52.97% of its value;
(3) The Index closed at a value of 249,034.47 on July 7, 2011 and dropped to a value of 63,063.906 on November 25, 2011. During this 4.5 month period of time, the Index lost about 74.68% of its value;
(4) The Index closed at a value of on 175,050.94 on March 26, 2012 and dropped to a value of 106,565.38 on June 1, 2012. During this 9-week period of time, the Index lost about 39.12% of its value.
I think that shorting VXX is a good trade if you are not forced to cover the short position by your broker either because of a margin call or a lack of available shares with your broker. I really cannot say what would happen to a short position in VXX during a market meltdown. As far as I can tell, if you can hold a short position in VXX for a long period of time, it will eventually drop to a lower price.