Gustave Eiffel

@The Front Porch Investor How in the world can anyone take the Financial Times seriously. They are a propaganda machine.

I always enjoy reading your articles. Keep up the good work.

As of this morning, it’s on the way down.

Thanks for your contribution and analysis. This is the most overpriced commodity on the planet. This chicken has finally come home to roost. Look out below.

Thanks for your contribution and analysis. This is the most overpriced commodity on the planet. This chicken has finally come home to roost. Look out below.

Apple….an over-hyped, over-valued commodity.

Thanks for your contribution and analysis. This is the most overpriced commodity on the planet. This chicken has finally come home to roost. Look out below.

New management has lost the plot.

@Algom there was a change in product strategy.

Thanks for your contribution and analysis.

Keep up the good work.

Thank you for your contribution and analysis. Walmart (WMT) seems to be one of the most overvalued commodities on the planet. Trading at a P/E ratio north of 50, there’s virtually no chance they’ll ever grow into this multiple. The latest earnings report suggests that cracks are starting to appear, and those chickens are slowly coming home to roost.

Thanks for your time and contribution, and bringing awareness to this ETF.

Keep up the good work.

Thanks for your time and contribution. SVOL has totally deviated from its original investment model. At the moment it’s a directionless ETF with no strategic investment objective.

Thanks for your contribution and analysis. I enjoyed the paper.

Keep up the good work.

Many thanks for your valuable insights and thoughtful analysis, much appreciated.

What’s often missing from most articles about SVOL is a discussion of its hedging strategy for its primary distribution driver. Specifically, when it comes to using VIX options as a sufficient hedge for futures contracts against volatility spikes it may be time to rethink this approach. Unlike equity options, VIX options behave differently and require precise alignment between their expiration dates and the expiration dates of the corresponding futures contracts to provide effective hedging.

A review of SVOL’s holdings from about a week ago reveals a significant mismatch between its futures contracts and the options utilized as hedges. The futures positions are as follows:

February 2025: -4,854 contracts
March 2025: -5,566 contracts
April 2025: -500 contracts

In contrast, the VIX call options used as hedges are concentrated in later expirations:
April 2025 50 Call: 62,248 contracts
May 2025 50 Call: 31,794 contracts
June 2025 50 Call: 13,003 contracts

This disparity is clear as the majority of the VIX call options are tied to expirations far beyond the timelines of the futures contracts. This creates a significant issue as volatility spikes primarily affect front-month contracts with the impact on longer dated contracts being far more muted. If a prolonged volatility spike, such as those experienced in 2008, 2010, 2015, or 2020, were to occur SVOL could suffer substantial losses. According to a stress test I performed on SVOL's current setup (futures versus options), a VIX spike to approximately 60 could potentially drive SVOL’s price down to around $8.

Another critical consideration is the liquidity of VIX options during volatility spikes. Many investors assume they can easily unwind positions and capitalize on the gains from these options during such events. However, in practice this assumption often proves incorrect. During periods of extreme volatility VIX options frequently experience significant liquidity constraints with few (if any) counterparties available to execute trades. Speaking from personal experience and having shorted VIX futures for many years whilst attempting to hedge against volatility spikes using VIX call options I can confirm that liquidity is often absent when it is most needed.

So, here’s what I’ve learned from my experience shorting VIX futures: 1) to achieve effective hedging the expiration dates of VIX call options must align with the expiration dates of the futures contracts they are meant to hedge, and 2) even when futures contracts are properly hedged the more significant challenge is liquidating positions and realizing gains during volatility spikes due to the illiquidity of VIX options.

Thank for your contribution and analysis, it is greatly appreciated. Those who believe that VIX options are sufficient to hedge futures contracts against volatility spikes should reconsider their approach. Unlike equity options, VIX options function differently in how they hedge against volatility. Specifically, for effective hedging the expiration of VIX options must align with the expiration of the corresponding futures contracts.

As of last check, SVOL's holdings indicate a clear mismatch between futures contracts and the options used as hedges. The futures positions are as follows.
Feb 2025: -4,854 contracts
Mar 2025: -5,566 contracts
Apr 2025: -500 contracts

In contrast, the VIX call options (i.e. the hedge) are as follows.
Apr 2025 50 Call: 62,248 contracts
May 2025 50 Call: 31,794 contracts
Jun 2025 50 Call: 13,003 contracts

Again, the inconsistency is quite obvious as the bulk of the VIX call options are concentrated in later expirations of which is far beyond the futures contract timelines. This creates a significant issue because volatility spikes primarily impact front month contracts whilst the effect on longer dated contracts is more muted. If a prolonged volatility spike that’s similar to those in 2008, 2010, 2015, or 2020 were to occur, the fund would face severe losses. I’ve run a stress test of SVOL’s current setup (futures vs. options) and a VIX spike of 60 or so would send SVOL’s price down to around $8.

Another critical factor to consider is the liquidity of the VIX options themselves. Many assume that during a volatility spike, they can easily unwind positions and realize gains from the options. However, this is far more challenging in the real world. During significant volatility events, VIX options tend to lack liquidity, leaving few (if any) players on the other side of the trade. I can speak to this from personal experience, having shorted VIX futures for many years whilst attempting to hedge volatility spikes using VIX call options. In times of need, the liquidity simply isn't there.

In short, what I’ve learned from shorting VIX futures: 1) when using VIX call options to hedge, the expiration dates must properly align with the futures contract expirations to be effective, and 2) even if futures contracts are hedged appropriately, the bigger challenge lies in liquidating positions and capturing gains during volatility spikes due to the illiquidity of VIX options.

Thanks for your analysis. Question: in your view just how safe are the preferreds? If you’re looking for income as many people are what percentage of your wealth would you allocate to Nly, Agnc preferreds?

Thanks in advance.

Thanks for your contribution and, especially, the clarity with AGNCO.

Keep up the good work.

Thanks for your time and analysis.

As for the dollar, it’s not going to end well. Too many are simply under estimating the BRICS movement. With the number of countries now joining BRICS on the rise, many under sanctions, those countries will now have many trading partners for which to do business thus rendering sanctions useless. The dollar as a weapon is in the past; a dedollarization is under way.

Thanks for your contribution and analysis. Where a sell rating on Costco is debatable, it’s not on WalMart - strong Sell.