Yes a geeky point here is that because this thing will always blow up the expected final wealth is always zero and Kelly optimal bet size is also zero (would be different in a portfolio of course) GAT
You're treating it as an investment and it's not. This isn't a company that went bankrupt due to bad management. It's an instrument that did exactly what it had promises, no more no less. You can sell your XIV position, correct? That is your compensation. What other compensation are you expecting?
Here I'm going to ask this one more time, is VIX the product that basically stays low but occasionally spikes up? Why wouldn't you just buy a bunch and exit on the spikes?
You can't trade the VIX directly, you can only trade VIX futures and options on those futures. Said futures are normally in contango and hence go down in price as each expiration cycle expires. It's a view on forward volatility.
I disagree. Everyone knows that you don't bet against Central Banks as they have unlimited (or so they say) buying (or should I say "printing") capabilities. So the long EURCHF was the right choice as the downside was limited. At least until SNB pulled the plug, against what they claimed before. Therefore I don't see how these compare
There is nothing wrong with shorting the VIX, as long as you adhere to the old "buy low, sell high" or "sell high, buy low". When the collapse in volatility is persistent, and the underlying stock market goes up parabolic, you should expect VIX to spike seriously one day. Reading your posts, guys, I see one serious problem. You assume that it is the retail traders that were shorting volatility. What you are not aware is that the serious $$$ were put down by i.e. pension funds (including European ones) looking for steady income stream. All thanks to FED and ECB policy of low (or negative) rates. That institutional inflows must have further dampened the volatility. The other problem is the wide spread issue on Wall Street: a lot of times we are dealing with products (or organizations) that are somewhat similar in nature to some form of insurance company and inherent risk associated with it. In real life, insurance companies are required to keep reserves for those occasional events. Not so on Wall Street. So you can sell stupid very risky product (to unsuspected buyers) or, like in 07-08 AIG did, be on one side of the product (without proper reserves) until you are insolvent. I don't know the history of Wall Street but I heard somewhere that in the past, the share holders were in fact personally liable for company debts. So if the company messed up big time and owed money, share holders had to cover it. Nowadays this may sound like a ridiculous idea to most (thanks to Wall Street) but in fact it makes all the sense. If, as a stock holder, you participated on the upside, then, should that upside be in fact due to participating in stupid (often herd like mentality) actions (think 06-08), you should participate on the downside too. But that would kill the idea of pure stock speculation and bring it back to the very idea of what the stock market was created for (bring funds to companies and allow the stock owners to participate in company profits). On a side note: I think I heard Kyle Bass saying around a year ago or so, that he assumed (given the market conditions then) that the market decline of around 4-5% will not be a buy the dip but rather cause a cascade of liquidation selling.