Because VXX and XIV were linked by the same underlying futures index, extreme divergences in the ratio were mathematically unsustainable. If the ratio climbed too high, it meant VXX was too high or XIV was too low. A trader could execute a pairs trade:
Ratio = VXX Price / XIV Price
The VXX/XIV ratio was calculated simply: $$ \textRatio = \frac\textPrice of VXX\textPrice of XIV $$ vxx xiv ratio
The is a historical artifact—a frozen fossil of the most profitable and dangerous trade of the 2010s. It taught a generation of traders that markets are not linear. Two products moving in perfect opposition could still create a third, predictable signal.
" : This 2016 paper by Bordonado, Molnar, and Samdal is a primary source for trading the . It tests the ability of these ETPs to hedge the S&P 500 and proposes a strategy to capture the VIX futures roll yield by switching between long and inverse volatility products. Because VXX and XIV were linked by the
However, the VIX is a mean-reverting asset. In calm markets, the VIX futures curve is typically in —meaning futures prices are higher than the spot price. As futures contracts approach expiration, they must be "rolled" into the next month. If the curve is in contango, the ETN sells cheaper expiring contracts and buys more expensive forward contracts. This "buy high, sell low" mechanic creates a systematic loss known as roll yield drag .
During this period:
Even though you cannot trade the original pair, the logic of the ratio lives on in modern volatility products.
