Seeking Alpha

Vixer

Vixer
Send Message
View as an RSS Feed
View Vixer's Comments BY TICKER:
Latest  |  Highest rated
  • Using A Weekly Options Strategy On The IPath S&P Short-Term Futures - VXX [View article]
    The ST profit on going long SVXY/UVXY stock looks attractive, however it has been less than a year since inception. During this time, the S&P was up 27%. Since there is no historical data for SVXY/UVXY, check out the long run of XIV/TVIX pair, and you'll see that this leads to perpetual decay over time. Directionally, XIV = SVXY, and TVIX = UVXY. Unprofitable.

    This phenomenon is due to mathematical decay that results from the DAILY leverage of the underlying ETFs. This is the case with any daily leveraged pair (FAS/FAZ, VIX/XIV, SVXY/UVXY, etc) - over time, they are all doomed to perpetual reverse splits or near-zero value. They only benefit in secular markets, but if we could predict those, there would be no reason to invest in the pair, only the profitable direction of the leg.

    http://bit.ly/OV3wq8

    Have yet to explore SVXY/UVXY strangles due to contango/backwardization, mathematical decay, and undesirable spreads. Appears a non-leveraged ETF (i.e. GLD) is a stronger play in the longer term with Kevin's strategy.
    Aug 6 06:19 PM | 1 Like Like |Link to Comment
  • VXX: Near Term Bull, Long-Term Bear [View article]
    No, a short position in VXX is NOT the same as a long position in XIV. By definition XIV is the inverse of VXX daily. Since this daily position is leveraged, you will see decay in the long term. Run a comparative stock analysis of the two in any dynamic stock chart (ex. google finance) and you will observe a net loss. In the last one year, XIV performed well due to a bull run in Q1'12, however, since inception, the net position is a loss.

    There is yet an instrument in the market with a long position that matches VIX or reverses the decay of VXX. This is due to contango and backwardization of futures contracts in the volatility of S&P futures (the underlying basis for VIX). In other words, shorting any volatility instrument will net you a proceed due to decay over the long-term given you have the liquidity or hedge to stomach the margin calls if the instrument goes the other way. This is a complex formula that many sophisticated professional traders still wrestle.
    Jun 25 08:30 AM | Likes Like |Link to Comment
COMMENTS STATS
2 Comments
1 Like