Trading the VXX for

Outstanding Returns

What is the VXX?

ETN (exchange traded note) representing a standard 30-day VIX futures price.

Contract Price Days Remaining

VX Jan 15.90 14

VX Feb 16.90 43

VX Mar 18.15 72

VX Apr 19.40 104

What is the VXX?

VXX holds proportionate amounts of the 1st and 2nd VIX futures contracts. Example:

Contract Price Days Remaining Holding

VX Jan 15.90 14 50%

VX Feb 16.90 46 50%

VX Mar 18.15 72

VX Apr 19.40 104

Next Day

VXX must shift its holdings from the 1st into the 2nd VIX futures contracts. Example:

Contract Price Days Remaining Holding

VX Jan 15.90 13 47%

VX Feb 16.90 45 53%

VX Mar 18.15 71

VX Apr 19.40 103

Trading System

Proprietary indicator: $VXDIF

We use a 15 day moving average of the $VXDIF

= Price of 2nd VX future - Price of nearby FX future

Long/Short Enter Date

Enter Price

Exit Date Exit Price

Days Held

Trade Profit

Percent Cum NAV

                1.00

Long VXX 1/30/09 418.32 4/13/09 401.48 73 -16.84 -4.0% 0.96

Long XIV 4/13/09 0.72 5/18/10 3.69 400 +2.97 +412.5% 4.92

Long VXX 5/18/10 116.52 5/27/10 113.32 9 -3.20 -2.7% 4.79

Long XIV 5/27/10 3.91 8/5/11 11.71 435 +7.80 +199.5% 14.34

Long VXX 8/5/11 30.31 11/23/11 48.60 110 +18.29 +60.3% 22.98

Long XIV 11/23/11 4.99 (open) 11.82 128 +6.83 +136.9% 54.45

ResultsThe result is an amazing 54.4 times your money in the 3.5 year period beginning Jan 30, 2009.

(XIV is an ETN that is a mirror image of VXX)

Lentz Volatility Indicator (LVI) is an indicator that shows whethervolatility, as measured by actual price movements in the $SPX index, is increasing or decreasing.

The LVI

Volatility increasing Volatility decreasing

Again beginning at Jan 30, 2009, the trades signaled by the refined approach were:

Results

Long/Short Enter Date

Enter Price Exit Date Exit Price

Days Held

Trade Profit

Percent Cum NAV

                1.00

Long VXX 1/30/09 418.32 4/13/09 401.48 73 -16.84 -4.0% 0.96

Long XIV 4/13/09 0.72 5/4/10 4.49 386 +3.77 +523.6% 5.99

Long VXX 5/4/10 89.48 6/01/10 120.76 28 +31.28 +35.0% 8.08

Long XIV 7/13/10 4.67 8/5/11 11.71 388 +7.04 +150.7% 20.26

Long VXX 8/5/11 30.31 11/25/11 49.20 112 +18.89 +62.3% 32.88

Long XIV 11/25/11 4.91 (open) 11.82 126 +6.91 +140.7% 79.51

(A remarkable 79 times your money in 3.5 years)

Actual Results

Study period ending date

OptionVue Clients (+70%)

Roll YieldEach day the VXX fund must sell some of its holdings

in the nearby futures contract and buy more of the 2nd VIX futures contract. This is called “rolling”.

Contract Price Days Remaining Holding

VX Jan 15.90 13 47%

VX Feb 16.90 45 53%

VX Mar 18.15 71

VX Apr 19.40 103

Roll YieldEach day the VXX fund must sell some of its holdings

in the nearby futures contract and buy more of the 2nd VIX futures contract. Called “rolling”.

Contract Price Days Remaining Holding

VX Jan 15.90 13 47%

VX Feb 16.90 45 53%

VX Mar 18.15 71

VX Apr 19.40 103

Normal term structure

Term Structure

Contract Price Days Remaining Holding

VX Jan 41.60 13 47%

VX Feb 34.90 45 53%

VX Mar 29.35 71

VX Apr 27.44 103

Backward term structure

Example of a backward term structure.

Roll YieldWhen a normal term structure exists, the roll yield is

negative as the fund must buy futures at a higher price (the 2nd contracts) than the ones it is selling (the nearby).

Contract Price Days Remaining Holding

VX Jan 15.90 (selling) 13 47%

VX Feb 16.90 (buying) 45 53%

VX Mar 18.15 71

VX Apr 19.40 103

Normal term structure

Roll Yield

Contract Price Days Remaining Holding

VX Jan 41.60 (selling) 13 47%

VX Feb 34.90 (buying) 45 53%

VX Mar 29.35 71

VX Apr 27.44 103

Backward term structure

When a backward term structure exists, the roll yield is positive as the fund may sell futures at a higher price (the nearby contracts) than the ones it is buying (the 2nd month contracts).

Effect of Roll Yield

Normal Term Structure Negative Roll Yield, depressing the VXX price

Backward Term Structure Positive Roll Yield, enhancing the VXX price

Effect of Volatility Changes

Increasing Volatility VXX Rises

Decreasing Volatility VXX Falls

The Two Forces Affecting VXX Price

1. Changing Volatility Levels (Immediate, impactful)

2. Roll Yield (Subtle, slow, steady)

Warning: VXX and XIV are volatile

Proceed at your own risk!

Example, after our clients bought in at around 10.7, the XIV dipped down to 8.1 just 5 weeks later.

Still, the use of stops is not recommended.

VXX Trading Tools Available in the

OptionVue Software

$VX30 30-Day forward price of the VX futures

$VXXFV Fair value of the VXX$XIVFV Fair value of the XIV

$VXDIF Difference between the two nearest term VX futures

$VXXDRE Daily roll effect for the VXX$XIVDRE Daily roll effect for the XIV

The Lentz Volatility Indicator

Articles and materials available at:

Articles on VXX Trading

www.optionvue.com/vxx.html

XIV = VelocityShares ETN from Credit Suisse

Alternative Instruments

VXX = an iPath ETN from Barclays

VIXY = ProShares ETF that moves like the VXX

SVXY = ProShares ETF that moves like the XIV