Take a look at the graph below. The dark blue line represents SVXY, a VIX futures shorting ETF (that is still alive and kicking today unlike XIV). The S&P 500 is represented by the light blue line (which appears to be horizontal).
From the beginning of 2013 to the end of 2017, the S&P 500 returned an impressive 86 percent, nearly doubling your investment. Shorting the VIX via SVXY yielded an amazing 565 percent return over the same span, virtually septupling (from 1 to 7) your money! People keep coming back to the VIX casino because of the absurd gains over such short timeframes.
So, what exactly is this VIX that I keep mentioning? The implied volatility of S&P 500 options is the technical definition of the VIX. However, it is far less essential how it is calculated than what it reflects.
The VIX tends to trend lower and lower when things are going well. The VIX rises as markets fall.
Longing the VIX is the same as purchasing market collapse insurance, while shorting the VIX is the same as selling crash insurance.
What is VIX stock’s polar opposite?
One of the most popular ways to play the trend was using the VelocityShares Daily Inverse VIX Short-Term ETN (XIV). Because it is based on the inverse of the VIX, it provided investors with consistent gains during this time of severe market quiet.
The markets began to correct in early February, and volatility soared. The VIX jumped from 12 to 50 in a matter of trading days, and the value of XIV plummeted. On February 5th, 2018, the value of XIV plummeted by more than 90%, effectively wiping out investors.
Is it wise to invest in SVXY?
This index is a terrible trade even over short time periods. The index has fallen in 73 percent of all months during the last ten years, with the likelihood of losses growing as the holding period lengthens. Simply put, for the vast majority of traders, this index has not been a profitable investment over time.
Which ETF tracks the VIX the best?
VXZ, VIXM, and VXX are the VIX exchange-traded funds (ETFs) with the best one-year trailing total returns. To follow market volatility, all three ETFs own futures contracts.
What did Volmageddon entail?
On February 5, 2018, a sharp increase in market volatility resulted in a one-day loss of more than 90% in the value of short volatility exchange-traded instruments (ETPs). The event was dubbed “Volmageddon” by traders. When hedge and leverage rebalancing occurs in concentrated markets, the authors explain how ETPs can collapse.
How does the Vixy ETF function?
The VIX, like any other index, cannot be purchased directly. However, a number of exchange-traded funds (ETFs) are designed to track the movement of the index. One such ETF is the ProShares VIX Short-Term Futures ETF (VIXY).
The S&P 500 VIX Short-Term Futures Index keeps the fund up to date with the VIX. This index looks at the performance of a group of futures contracts with a weighted average expiration of one month.
VIXY isn’t for everyone, and ProShares only recommends it to experienced investors. VIXY investors tend to fall into one of two types. Either they want to profit from expected increases in S&P 500 volatility, or they want to protect themselves from stock market downturns.
While there is a correlation between VIXY and the VIX, there is not a straight link. As a result, VIXY values frequently diverge significantly from the VIX itself.
How do you go about trading Vixy?
- Investors have traded the CBOE Volatility Index (VIX) since it was first created as a measure of investor sentiment regarding future volatility.
- Buying VIX-linked exchange traded funds (ETFs) and exchange traded notes (ETNs) is the most common strategy to trade the index.
- The iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX), the iPath S&P 500 Dynamic VIX ETN (XVZ), and the ProShares Short VIX Short-Term Futures ETF are all VIX-related ETFs and ETNs (SVXY).
Is it possible to short VIX?
- Its value tended to rise during severe market downturns, earning it the moniker “Fear Index.”
- For those who shorted it (shorting is a bet that an investment will drop in price — thus if you short the VIX, you win money when it goes down and lose money when it goes up), it was a major source of riches. The VIX was so popular as a trade that it even has its own subreddit.
Is it possible to buy and hold the VIX?
Investors cannot purchase VIX, and even if they could, it would be a high-risk investment. 1. The Volatility Index (VIX) of the Chicago Board Options Exchange is a market assessment of future volatility. The implied volatilities of a wide range of S&P 500 index options are used to create VIX.