Quote from Jgills:
well, those indicies are very different than straight positions in one of the futures. the bleed for being long the nov future is no where near the bleed for being long VXX (the etf that tracks the S&P 500 VIX Short Term Futures Indiex).
if you read into the document (i can send you a spreadsheet i built to replicate the index if you're interested) the index tracks the performance of a position in a constant maturity future. you may be familiar with it, but i'm going to explain it further because your comparison leads me to believe you're not completely familiar with the difference. if someone notices a flaw in my explanation feel free to correct me.
to maintain a constant maturity future, the index rolls a position every day between the front and second month future, THIS is why it bleeds so hard, you're paying the premium between the front future and the 2nd future EVERY day. the current difference is ~80bp (this is a dynamic number and is relatively small because the dec future has always traded with a kink in it relative to other months). so you're paying the # of contracts rolled to track the index * 80bp PER day if you go long VXX today.
if we move onto my outright nov position and you want to make a similar comparison, you can tell me that the premium i am paying is the difference between spot vix and nov vix - this is where my perceved cheapness is. the current difference is ~20bp (it actually went negative at one point today). if you're looking at this as decay, or bleed, that means i am paying ~20bp (this number is also dynamic) over 18 calendar days (12 bus days) to expiry.
There is a very large difference between 20bp over 12 bus days and roughly 1/20 (i say 1/20 assuming its rolling 1/20th of the position each day into the next future) of 80bp (and often higher than 80bp) per day.
i do have seperate backtests that i have run on these indicies as well
sorry if this was too long/drawn out, or if i am preaching to the choir.
