I am also waiting for the volatility ETFs to retreat a little before opening a 2nd long trade. However, rather than the VIXY, this time I intend to trade the VXX as it has a significantly higher volume, and in theory will have a smaller spread.
The article shown here regarding the VXX contango is quite interesting. My understanding is that if the VIX remains constant, then the smart strategy is to simply short the VXX, or open a long trade in the XIV. Hence, given the fact that the VIX has an inherent tendency to revert to a mean between 15 and 25, if you have a long enough time frame, and pockets deep enough to ride through the spikes to the upside and downside, money can be made due to the contango. However, my time frame will not be long enough, and my pockets not deep enough.
The VIX is presently at 14.85, but following the inevitable spike to say 40+, shorting the VXX will be a win-win scenario as the VIX contango will be playing in your favour.
Does the above make sense? I hope so, because if the above is wrong ... then I really have this contango think screwed up in my head.
