Contango and the VXX

At great personal risk to my health and mental wellbeing, I am going to take one final shot at the iPath S&P 500 VIX Short Term Futures (VXX). The only thing clear about this exchange-traded product is that traders and investors are still unclear about how it works. I will make an attempt to put it into words, pictures and even some pretty charts. ("Contango and the VXX" -- it sounds like a crime-fighting show.)

The very first thing to realize is VXX is not the CBOE Volatility Index (VIX). The VXX consists of the VIX futures with an average to maturity of 30 days, so it holds front-month and second-month VIX futures. For instance, as of March 5, VXX was 41.89% March 2012 VIX Futures and 58.11% April 2012 VIX futures. Its performance today will be based on those two contracts, not the VIX itself....716 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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