# Why is the value of the VXX ETN always above short-term VIX futures prices?

If the VXX is simply a constant maturity weighted average of the 1st and 2nd month VIX futures prices, then why is its market price always larger than the maximum of the two? (the larger of the two is the 2nd month if in contango). I would expect it to always sit somewhere between the 1st and 2nd month prices.

For example, today at time of writing I observe the following prices:

Nov 17th VIX future (15 days to expiry) : 16.10

Dec 15th VIX future (43 days to expiry) : 17.00

VXX : 18.49

I would expect the VXX right now to be roughly the average of the two, i.e 16.55. What is wrong with my reasoning here?

• The daily price change in the VXX has something to do with the daily price changes in the two futures contracts. But the price LEVEL of VXX is not related to the futures price levels at all. In any case, the VXX price level is adjusted from time to time through a stock split/reverse split. Commented Nov 2, 2015 at 23:34
• @AlexC: what do you mean by "price LEVEL"? If that's just the price of the instrument, then why is it not related to futures price (properly normalized) at all? Commented Nov 3, 2015 at 14:56
• I share the puzzlement of @LazyCat. Assuming no splits, why would the VXX not be equal to the weighted average of month 1 and month 2 prices (adjusting the daily weight such that the weighted average time remaining until maturity stays constant at 30)? Commented Nov 3, 2015 at 23:17

The price of VXX ETF should not be the price of the mentioned basket of VIX futures. It is the change in price of VXX (the return) what should be equivalent to the change of price of the futures basket with 1 month average maturity.

That is because the VXX ETF works as an open end fund, so its price is just the price of a share of that fund, which has an arbitrary value set at the inception of the fund. When you buy a share of the fund, the change in value of that share will be representative of the change of value of the basket that is inside the fund.

Look to the historical prices of VXX for a very long term and you will see that it doesn't match the futures. But look to the returns and you will see they match.

• @MMagique Happy to help! Commented Nov 4, 2015 at 20:19

I'll write it up as a separate answer, though it may be what AlexC actually meant in his comment. VXX is an ETN, not an ETF, so when you buy a share of VXX, you are not buying a share in its holdings, like it is the case for ETFs (from VXX prospectus: "Owning the ETNs is not the same as owning interests in the index components included in the Index or a security directly linked to the performance of the Index"). It's more like buying a bond from Barclays, though they put it differently - again, VXX prospectus: "the ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC". This has implications for tracking the corresponding index (defined by VIX futures). The main one is that you cannot create new shares of VXX, only Barclays can. Therefore, there is no "index arbitrage", that would keep VXX price same as the weighted sum of the futures contract. (prospectus: http://www.ipathetn.com/US/16/en/details.app?instrumentId=259118)

The reason is known as "Contango"