How Volatility ETPs Really Work TL;DR

The short-term Volatility ETPs hold a mix of the two nearest-to-expiration VIX futures. The ETPs are either long both of those (e.g., VXX, UVXY, UVIX, VIXY) or short both of those (SVIX, SVXY).  If the VIX futures term structure is in contango, with prices increasing with time, then the tendency will be for both futures to drop in value on a daily basis–so a long ETP will tend to drop in value and the short ETPs will increase in value.

The rate at which VIX Futures converge to spot VIX varies, and their tracking to the VIX depends on how much time the VIX future has before expiration. Near expiration, a VIX future will converge rapidly to the VIX, and will track changes to the VIX at pretty much a 1:1 ratio.  A VIX future with 3 months to expiration is much less correlated with the VIX value.

Complicating this whole situation is the fact that the ETP’s change their mix of VIX futures on a trading daily basis to shift out of the next-to-expire future into one with more time until expiration. Contrary to most people’s intuition, this roll process is economically neutral, it’s like changing two nickels for a dime; there’s no net loss (see The Cost of Contango)

With leveraged ETPs like UVIX and SVIX, things are further complicated by their need to rebalance their assets daily so that their next-day performance will match their leverage goal. Over time this rebalancing process results in volatility drag that significantly erodes the price of the leveraged ETPs, but in a strongly trending market results in leveraged ETPs outperforming their leverage factor.

Measures of the VIX term structure, e.g., VIX3M/VIX or VIX90/VIX30 give a qualitative feel for how the ETP prices are going to trend, but as you can see, they are fairly distant from what is really going on.