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Replicating XIV/SVXY through futures (without the funkness)

  1. Would this not be just selling a blend of the nearest two month's VIX futures? And why even go there, why not just, month after month, sell one month out VIX futures, so long as there is contango? Then stop doing it where there is not contango? Do this with a very small part of your portfolio given the risk that VIX could skyrocket, but over time won't you be pretty much guaranteed to make money unlike those poor sods in XIV and SVXY (including me - I was long XIV a bit thank GAWD I found you guys before I got too deep into it!!!).

  2. Or you could just buy and hold the S&P 500. Same difference after you adjust for variance.

  3. Whoa, how do you get to this (in my mind) remarkable conclusion Maverick? Thanks.
  4. Not Mav but...

    The VIX is a measure of vol in the S&P500 and 'normally' as the market trends higher it does so gradually over a number of years which equates to low vol in general and when it goes through corrections or turns on its heels and we get a bear market it can happen suddenly and we see vol spikes. Vis a vis - you are short vol when long spooz.

    If you want a fancier way to do that, sell ES puts. But I'd advise that for only the more advanced investors/traders and if I was retail would stick with a simple vanguard/fidelity etf.
  5. I would only run this strategy through a structure like XIV or SVXY. You pay a small management fee but your losses are capped to the investment. If you do this yourself, your losses are unlimited. What if the VIX futures had rallied 200%.

  6. thanks spread em. What is ES? Thanks.
  7. Mini S&P500 futures which use the ticker ES. I would avoid them if you have yet to hear of them.

  8. interesting conclusion as XIV and SVXY were just almost wiped out!

    if they were down even 200% i would be even more dohwn. but i would do this with only a small piece of my portfolio, and i couldnt be wiped out in the case of a day.

    wouldnt this generally be better off than buying xiv or svxy - at least i save the management fee?

  9. A benefit of an ETN is the embedded zero-put, as seen this week. If VIX had run to 100 or 200, the sponsor would have eaten the loss in value above 100%.
  10. The sponsor was hedged, so it's unlikely they would have eaten anything...
  11. Martinghoul, would the XIV/SPXY owners have to come out of pocket if XIV/SVXY didn't shut down and VIX futures continued their upward climb? Or whoever hedged the issuer would have to come out of pocket?
  12. Yes, the owners would have needed to pay, I expect.

    We know that the issuer is not in the business of taking a view on volatility. The issuer's job is to collect their fees, manage the assets, all while being as flat risk as possible at every point in time. So, as I described on another thread, we can be reasonably sure that the issuer has a portfolio whether they're short XIV and short some VIX futures against it.

    If you're a XIV investor, in theory, you could also have a portfolio where you're perfectly hedged. However, this isn't likely, since the point of being a XIV investor is to have a view on volatility. Therefore, we can be reasonably sure that a typical XIV investor is just long XIV. If XIV didn't have an effective 0 floor, a typical investor's liability would have been unbounded.

    Obv, this is just my interpretation...