"Imagine buying vixy 21st June '13 and cashing in twelve months later." I presume you meant shorting VIXY in June 2013.
Have you tried shorting VIXY, VXX, UVXY or TVIX?
I attempted to short UVXY on 8-Oct as the SPX was making a short lived (one day) recovery. However, at the time FP did not have any UVXY borrowed to enable my short trade to open. Hence, instead I put a long bid on XIV, but my bid was too low and did not get filled. If I had managed to short UVXY near the start of trading on 8-Oct I would have made about 10% or so for the night.
The point of the above discussion is that when you decide the time is perfect to short VIXY, VXX, UVXY or TVIX it may not be possible to short these ETFs.
My understanding is that opening a long trade in any of these volatility ETFs is never a problem, but the only inverse volatility ETF, with high trading volume, that I can find is XIV. From a leverage and acceleration factor perspective XIV is roughly the same as VIXY and VXX. However, if you are seeking fast movers like UVXY or TVIX, but inverse, then I cannot find any fast moving inverse volatility ETFs.
Contango works in your favour if you are short VIXY, VXX, UVXY or TVIX, or long XIV. I discussed this point a couple weeks ago in one of my posts, which included reference to an excellent article on this topic from Seeking Alpha. However, I don't have time atm to search for my old post or the Seeking Alpha article.
When is a good time to open a long trade on the XIV chart?
This is a difficult question because the XIV has crashed through the 200 day ma and there are multiple support levels below at 30, 25, 20, etc. Perhaps the key is to watch the VIX and short when the VIX has peaked and turned turtle. At the moment the VIX is right at the top of significant resistance at 21 and the SPX is sitting right on the 200 dma. If the VIX breaks 21, then a tradeable level would be 27 from May/June 2012, or maybe the 45ish level from May 2010. However, being relatively new to volatility trading, perhaps I am simply looking to far into the future, or is that looking too far in the past?
Of course the only real problem with the theory that Thor has presented is that if your trade entry point is too early, then the volatility ETFs could remain 'irrational' longer than a trader's CFD account balance can remain solvent. Not that this issue seemed to bother Flem. He continued shorting until most of his CFD account had vaporised, only to catch the big move and recover all his losses plus more in one night.
