/biz/ - Business & Finance

>>50911431
>VIX is basically capped at 30-35
more like 90
>But how are you then 'harvesting gains'?
Automatic rollover. Futures contracts expire, and when that happens you roll over to the next contract. so let's you're shorting the August contract which expires tomorrow, tomorrow it rolls over to the September contract so you buy the August contract (to end your short) at around 21.35 and sell the September contract at around 23.60. So you benefit from that difference which is called the contango. Let's say you get an average difference of 2 over three years so it's like instead of shorting at 30 you shorted at 30+2*36 = 102, so your gain is (102-the current contract price) * number of contracts, although after such a long time you'd definitely want to increase your number of contracts, but you get the idea, the gains from each rollover in contango add up.