We are in a lowenvironment, and the “smart” play would seem to be to in the such as VXX, the VIX short-term ETF. Does this strategy work?
The first study was conducted in VXX and the time frame was from 2010 to present. On every business day we sold the 16( ) put and compared the strategy when the VIX was at levels below 15. We held all positions through . A table of the results was displayed. The table included the , average P/L and . Although all the short puts had a high POP, In almost all situations the short puts didn't make a profit. The same study was run with . It was still a losing strategy.
So why doesn’t this work? VXX is based on the VIX(/VX). VIX Futures are in 88% of the time which creates a . This has created a slow decay in the product. As VXX declines so does its IV. That makes it difficult to when the product is at "low" prices.
Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista for the important takeaways and an understanding of why shorting puts in the VXX doesn’t work.