“It’s as meaningful to me as looking at the level of the dollar or the SPX, because it’s telling me how anxious people are about the next 30 days.”

JA: How do you feel about the VIX’s popularity?

RW: I’m quite happy. I follow that number each and every day. I mean, it’s as meaningful to me as looking at the level of the dollar or the SPX, because it’s telling me how anxious people are about the next 30 days. But I also view VIX in conjunction with the VIX futures prices. And so you see the level of VIX today—47 now. If you go to the one-month futures contract on VIX, you’ll see it’s probably around 42. And the two-month contract, I can look it up, I have this Bloomberg machine in front of me.

JA: Yeah, me, too. The May 20th is 42.

RW: I’m going to pay 47 for my insurance policy today. But if I go out 30 days, for the same 30-day policy, I’m going to pay 42.

So what does that tell me? That tells me I’m really anxious over the next 30 days, but I’m anticipating there’s going to be a lot of resolution of the uncertainty when 30 days is up. And you can see, as you go along the curve iteratively, you can do that with each interpretation. And I think it’s downward sloping.

JA: I’m going to shift over toward leveraged and inverse exchange-traded products. Years ago you calculated that investors at that point had lost some $4 billion on VIX products. Is that something you’ve continued to track?

RW: Absolutely. I don’t have a new estimate, but all you have to do there on your Bloomberg machine is type in the symbol SPVXSP. That index began reporting on Dec. 20, 2005. At that time, the level of that index was 100,000. And what is it today? 67.

JA: Yeah. So the total return is -99.93%.

RW: Ha. That’s what VXX [iPath Series B S&P 500 VIX Short-Term Futures ETN] provides you. So if you buy and hold that over that period, that would be your generous rate of return. And this happens because these things are essentially futures indexes. They’re not VIX. And generally what you see is futures prices being higher than they should be. The futures price is usually an upward-sloping price curve. And what happens through time is that the futures prices move down toward the spot price, and you lose money.