Hey all, this is a for fun example of what returns look like for liquidity providers in VXX. An interesting aspect of a structured product like VXX is that it's composed of futures, but doesn't expire. That means when a trade doesn't work out the trader gets a choice: exit the position, or add it to their inventory and wait. Taking the latter road exposes the trader to massive skew risk.
This is the short leg of a simplistic volatility market making strategy. It attempts to sell 1% of the account on every little pop in VXX, then cover the short after the trade has made a 2% return. A majority of the trades are closed for a profit within a short period of time (see the logs), but larger downward movements cause it to accumulate an inventory. Since it's selling risk premium with essentially no expiration the only unknown is the time it takes to earn a yield (also borrowing costs & forced covering).
This algo blew up in 2011, but that's skew risk for you.
