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VIIX: More Downside In Store For VIX Bulls

QuandaryFX profile picture


  • VIIX has delivered a strong return to investors this year as the VIX has popped – but the long-run returns are against volatility bulls.
  • Roll yield has historically decimated holdings of ETPs following the VIX and losses from roll yield are the natural state for VIX futures.
  • It is time to take profits in VIIX and avoid purchasing at this point.

As you can see in the following momentum table from Seeking Alpha, it’s been a pretty good year for holders of VelocityShares VIX Short-Term ETN (VIIX).

If you’ve been lucky enough to have captured this upside, I suggest taking profits. If you’re standing on the sidelines, I suggest avoiding this ETN. Put simply, I am quite bearish VIIX due to a few key factors which we’ll discuss in the following sections.

Digging into the Methodology

If you’ve ever read the description of VIIX at etf.com, you’ll come across this very important comment.

In my opinion, these two caveats should be written in flashing red letters which all investors must read before purchasing the ETP. The reason why I am so adamant about this is that having discussed the VIX and VIX-related ETPs with many several individuals, I have observed that a good percentage (perhaps greater than 50%) are unaware of these two noted caveats of poor correlation as well as “vast” sums of capital “erased” for holders of volatility ETPs like VIIX. Furthermore, of those who are aware that something is amiss in the volatility ETP space, even fewer grasp exactly why volatility ETPs don’t seem to deliver. In this section, we are going to do a deep dive into the driving force behind etf.com’s commentary above. So let’s jump in.

Most investors who have been around financial markets for some length of time stumble upon the VIX at one point or another. The VIX is commonly quoted on many financial media sources and is a fairly good gauge at predicting the “fear level” in the market. At some point along the way, these investors may generate a feel or a sense for where the VIX is likely headed and look to the VIX-tracking ETPs like VIIX to place a bet on future movements of

This article was written by

QuandaryFX profile picture
I work within the trading and money management industry. I have been trading and investing for several years. My style is technical execution with a fundamental thesis in place. I rely heavily on statistical analysis of the correlations between fundamental changes and price movements for generating most ideas.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (3)

"In other words, over the past 10 years, VIIX has eroded shareholder value at a pace of about half per year "
That's actually not too bad. Of course you're not going to make money directly on VIIX, it's more like insurance for the rest of your portfolio. You could compare it to buying protective puts, which will also lose money over the long term, but can still be a useful hedge.
jerryki profile picture
I just did a 1-year chart of VXX and VIIX and they were exactly coincident (% change) thru the whole year. So why would anyone use VIIX for any reason at all, ever?
Great article. Thanks. You explain holding VIIX long term is seriousely a bad idea. True. Then based on concept of contango you jump to the conclusion of staying away from VIIX. Makes no sence. What would be wrong holding VIIX daily, or weekly or monthly. Buy any dip. Sell any any rally?
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