The VXX ETN currently has assets of $1.4 billion and has averaged $1.1 billion in monthly assets since its inception in January 2009.
There are many traders that are holding this security overnight, praying for the next black swan. That is not my opinion but a fact.
How much money has been lost betting on black swans using VXX over the years? It’s impossible to say, but we can do a crude calculation.
Cumulative losses = Sum of (prior day ending assets * daily % change).
Using this formula, approximately $5.5 billion has been lost since the inception of VXX.
Now, this loss assumption is only based on the ending assets for the day. The volume in VXX is extremely high, and on any given day it can actually exceed the entire assets of the fund (this is very rare for any security, including ETFs/ETNs). For example, on February 11, VXX entered the day with $673 million in assets. $3.9 billion in VXX traded that day ($ volume) and assets ended the day at $673 million.
Does this mean that the $3.9 billion traded that day was minting money in VXX? Not likely. Why?
Because the intraday activity in VXX that day (-0.6% from open to close) was typical of an average day in VXX. That is to say, VXX usually trends down throughout the day, with an average daily open to close return of -0.21% since inception (-99.15% cumulative). This is not all that different from its daily return (close to close) of -0.25% since inception (-99.75% cumulative).
It is very hard to make money day trading a security on the long side with that type of profile, so I’m going to assume that the intraday volume multiplied by the intraday return (divided by 2 to account for average entry price) generates additional losses of around $1 billion.
This brings the total estimated losses in VXX to roughly $6.5 billion.
