SVIX: I Actually Like It Now

seekingalpha05-10

Short VIX Futures ETF has made changes to its strategy, making it more appealing to risk-averse investors, so I am changing my view from last year.The fund now employs hedges against a possible jump ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSVIX: I Actually Like It Now\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-10 09:59 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4691645-svix-etf-i-actually-like-it-now><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Short VIX Futures ETF has made changes to its strategy, making it more appealing to risk-averse investors, so I am changing my view from last year.The fund now employs hedges against a possible jump ...</p>\n\n<a href=\"https://seekingalpha.com/article/4691645-svix-etf-i-actually-like-it-now\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SDS","symbol_name":"两倍做空标普500ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4691645-svix-etf-i-actually-like-it-now","article_id":"2434074674","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/168523680/image_168523680.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2434074674","pubTimestamp":1715306391,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Short VIX Futures ETF has made changes to its strategy, making it more appealing to risk-averse investors, so I am changing my view from last year.The fund now employs hedges against a possible jump in VIX, reducing the risk of a blow-up like in 2018 and 2020.SVIX has outperformed the S&P 500, returning 46% in the last 6 months and 190% since the summer of 2022.   ryasickShort VIX Futures ETF  is an interesting ETF that shorts VIX futures. I covered this ETF last year in an article titled SVIX: An Aggressive And Risky Play On VIX and actually rated it a \"sell\" due to excessively risky nature of the fund at the time but since then the fund made some changes which makes it a lot more palatable for risk-averse investors like myself. In fact, I went ahead and started a small position in my portfolio recently and so far I am happy with the results. Notice how the fund is beating S&P 500 handily in the last 6 months, returning 46% to investors during this period. 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I covered this ETF last year in an article titled SVIX: An Aggressive And Risky Play On VIX and actually rated it a \"sell\" due to excessively risky nature of the fund at the time but since then the fund made some changes which makes it a lot more palatable for risk-averse investors like myself. In fact, I went ahead and started a small position in my portfolio recently and so far I am happy with the results. Notice how the fund is beating S&P 500 handily in the last 6 months, returning 46% to investors during this period. Data by YChartsSo why did I rate it sell last time and what changed since then? Well, last time I called out the fact that the fund was shorting VIX futures without a hedge using 100% of its buying power which was a pretty aggressive play as compared to other funds that short volatility such as SVOL (SVOL) which shorts VIX futures using 0.25x of their buying power or SVXY (SVXY) which uses 0.50x of their buying power to short VIX futures. This fund uses 4x as much buying power as SVOL and 2x as much buying power as SVXY which means that at least in theory it will outperform both funds significantly while VIX is dropping but underperform pretty badly when VIX is on the rise. Below is how each of these funds performed since the summer of 2022 when VIX hit a peak of almost 40 and S&P 500 (SPY) was near bottoming. Since then SVIX is up 190%, SVXY is up 105% and SVOL is up 30% while SPY is up 16%. Notice that all three inverse-VIX funds outperformed the overall market significantly, SVIX by a margin of 10x. Data by YChartsI still didn't answer the question of why I changed my thesis though. For that, I invite you to look at the fund's current holdings and notice something different from the last time I covered this ETF. Notice that the fund now holds a number of VIX 30 call options expiring in June. What this means is that the fund actually changed its strategy and now it employs hedges against a possible jump in VIX. In the past the fund was completely defenseless in a scenario where VIX could jump above 30 overnight but it isn't so anymore which is a huge difference. In fact it's the difference between the fund surviving and going bust if we were to have an event similar to VIX blow ups we saw in 2018 and 2020.   SVIX Holdings (Seeking Alpha)Since SVIX is shorting VIX, you would think that it needs VIX to drop significantly in order to make money. After all the whole idea of shorting something is that you expect it to drop in price so that you can benefit from the drop, right? This also means that maybe shorting VIX while it's already in low 10s is not a good idea, correct? Well, shorting futures is a bit different than shorting stocks because there are spot prices in place. Also, like I said above, there are hedges in place too. For example, between October 2023 and April 2024, VIX was virtually flat (only down -1.2%) but SVIX actually saw its price climb by 32.5% during the same period. Imagine shorting something that stays flat and still gaining 32% in value. I'd say it's very impressive. Data by YChartsKeep in mind that SVIX doesn't make distributions so while it works similarly to SVOL, it is not designed for income generation purposes unless you buy a large position and start selling off little by little over time to generate your own income, which is something many people do with index funds. VIX is something very difficult if not impossible to predict. Since it's not a company, it has no earnings, no cash flows, no assets and no dividends. Basically VIX is implied volatility of S&P 500 options. More specifically, VIX is the implied volatility of at-the-money S&P 500 options that are one month away. For example, the current value of VIX is 13 because monthly S&P 500 call options have an IV (implied volatility) of 13. When things are less volatile, option contract prices drop because traders don't expect much movement in stocks so they are not willing to pay a premium. When things get more volatile, traders pay a premium for options contracts because they expect stocks to move quickly. One major misconception is that only put option prices affect VIX but in reality, put and call option prices affect VIX prices equally. So VIX can rise and drop very suddenly but it tends to stay within a range for most of the time. We can say that VIX has a \"comfortable\" spot around 15 range because on an average year S&P 500 is expected to move around 10%. When the balance of the market is disturbed in a significant way, VIX tends to rally very quickly but once the disturbance is over, it tends to drop back to \"normal\" levels just as quickly because traders don't want to keep paying huge premiums on options contracts forever. When things are highly volatile they don't mind paying those high IV premiums but they can keep doing this for only so long so VIX has to come down sooner or later. Historically shorting VIX has been seen as a dangerous play because VIX can move up so fast that one could see themselves losing everything before they can even understand what's going on. In 2018 and 2020 we saw several funds blow up because they were shorting VIX and VIX climbed too fast. Later on VIX dropped just as fast as it came up but it was too late to save those funds because they were already receiving margin calls and they were already insolvent. Data by YChartsThis is why it's extremely important to have a hedge in place and this fund had no hedges when I first covered them last year and I rated them a \"sell\" but now that they have a hedge in place, I am far more comfortable holding them. Having said that, this fund is actively managed so they can change their strategy again just as they did in the past so if you are going to buy this fund you must pay attention to its holdings periodically and make sure it still fits your goals. If I were to see that they dropped their hedges and went back to their \"old ways\" I would change my mind about this fund once again. At the moment I am comfortable owning a small position in this as long as they are using hedges. Investors can also create additional protection by buying some out of money VIX calls if they chose to do so but this is only optional. As I always say, the best way to protect your portfolio and hedge yourself is to keep your position sizes small in general. If you buy a position that makes up 50% of your total portfolio and it goes bust, you lose half of your money but if it happens to a position that makes up only 2-3% of your portfolio, you most likely won't lose sleep over it and feel better about it. Maybe those investors who want to benefit from shorting VIX can create a position where it's 1/3 SVOL, 1/3 SVXY and 1/3 SVIX so that they are more diversified and better protected than having a full position in SVIX. This is another option for more conservative investors.  If we had a black swan event where VIX suddenly rose to 30-40 or above, that would be a great time to buy lots of SVIX. That way when VIX eventually returns back to 10-15 range, you can enjoy SVIX climbing in price at a pretty rapid rate as we've already seen it climb 190% since the summer of 2022.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2434074674"}