SVOL Just Passed A Massive Test, We're Big Buyers

seekingalpha08-08

SVOL is an interesting high-yield ETF, and we like how the fund is structured to produce income over time.In theory, SVOL should be somewhat susceptible to spikes in the VIX, and this has prevented us...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2457934872?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/83704315/image_83704315.jpg","is_english":true,"pubTime":"2024-08-08 22:03","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2457934872","market":"fut","top_or_hot":-1,"title":"SVOL Just Passed A Massive Test, We're Big Buyers","media":"seekingalpha","content":"<div>\n<p>SVOL is an interesting high-yield ETF, and we like how the fund is structured to produce income over time.In theory, SVOL should be somewhat susceptible to spikes in the VIX, and this has prevented us...</p>\n\n<a href=\"https://seekingalpha.com/article/4712046-svol-etf-just-passed-massive-test-we-big-buyers\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>SVOL Just Passed A Massive Test, We're Big Buyers</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\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\">\nSVOL Just Passed A Massive Test, We're Big Buyers\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-08 22:03 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4712046-svol-etf-just-passed-massive-test-we-big-buyers><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SVOL is an interesting high-yield ETF, and we like how the fund is structured to produce income over time.In theory, SVOL should be somewhat susceptible to spikes in the VIX, and this has prevented us...</p>\n\n<a href=\"https://seekingalpha.com/article/4712046-svol-etf-just-passed-massive-test-we-big-buyers\">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":"BK4550","symbol_name":"红杉资本持仓","start_time":0,"source_url":"https://seekingalpha.com/article/4712046-svol-etf-just-passed-massive-test-we-big-buyers","article_id":"2457934872","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/83704315/image_83704315.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2457934872","pubTimestamp":1723125802,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"SVOL is an interesting high-yield ETF, and we like how the fund is structured to produce income over time.In theory, SVOL should be somewhat susceptible to spikes in the VIX, and this has prevented us","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4550":"红杉资本持仓","BK4588":"碎股","FDN":"First Trust Dow Jones Internet I","SVOL":"Simplify Volatility Premium ETF","UVXY":"1.5倍做多恐慌指数短期期货ETF","BK4585":"ETF&股票定投概念","TVIX":"二倍做多VIX波动率指数短期期权ETN"},"translate_title":"SVOL刚刚通过了大规模测试，我们是大买家","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SVOL":1,"FDN":0.9,"TVIX":0.9,"VIXmain":0.6,"UVXY":0.6},"content_text":"SVOL is an interesting high-yield ETF, and we like how the fund is structured to produce income over time.In theory, SVOL should be somewhat susceptible to spikes in the VIX, and this has prevented us from getting 'too large' in the name in the past.Monday, we got our first look into how the ETF would perform during a spike in volatility, and it did incredibly well.The ETF fared far better than expected as a result of its unique hedging mechanism, and we're much more comfortable investing larger sums into the fund going forward.We upgrade SVOL to a 'Buy'.   MGP/DigitalVision via Getty Images In the past, we've written two articles about the Simplify Volatility Premium ETF, also known as NYSEARCA:SVOL. In our first article, we talked about the fund's unique composition and how we prefer the ETF's long-term outlook to other high-income instruments on offer, like QYLD and JEPQ. In the second article, we got a bit more defensive on the fund due to macro factors, but still maintained that we liked the fund's construction overall. Through all of this, the big question hanging over the head of SVOL was how it would do in a VIX-spike scenario, given that the fund was only launched in mid 2021. It's true that the fund should theoretically be hedged in scenarios like this, but building a strategy in theory and testing it live in the market are two separate things altogether. You never know what can 'go down' under live market conditions when it comes to levered products. As luck would have it, Monday saw one of the largest spikes in the VIX of all time in nominal terms, where the VIX spiked more than 180% before market open from 24 to 64: TradingView While the cause of the jump was a blowup in the Yen carry trade (not a market-ending crash) this spike did send the VIX to the highest value that the market has experienced since Covid, which means that the quickness and severity of the spike was no joke: Seeking Alpha While others have commented that the volatility proves that the fund isn't a good option, we think the opposite is true. SVOL did end Monday down a hefty 6%, but now, with a proper VIX-plosion under its belt, we feel more confident than ever that the fund is built to last. Today, we'll dive in and explain why. SVOL's Construction In case you didn't know, SVOL is a unique ETF that was designed to produce a high level of income for investors. Right now, the fund yields about 17%, and the majority of that yield is derived from a systematic VIX futures selling strategy. We've already explained how this works in practice, but here's a quick refresher if you're interested:  In the real world, VIX futures are almost always priced higher than the VIX itself. Visually, you can see this below, where the red line is the VIX, and the white line is the front month VIX future: TradingViewPractically speaking, it means that [SVOL] is selling futures at the white line and buying them back (letting them cash settle) at the red line. When done over and over, this produces profit when the VIX is flat or going down. Because the VIX is mean reverting, this is what happens most of the time.  All in all, we're happy with how this strategy has been laid out by the fund sponsors, and we feel as though it is a superior option to other high-income funds that sell calls on index positions over time. Aside from the VIX selling strategy, the fund holds the majority of its funds in short term treasuries, which aren't very volatile and provide additional income on top of the futures income strategy. Finally, the fund does something unique - it purchases VIX calls to protect principal in the event that the index spikes, like it did on Monday. SVOL's Performance On Monday As you may know, Monday was a wild day in the market, where the market collapsed on the back of an unwind in the Japanese Yen carry trade: TradingView While the details of that situation lie outside the scope of this article, the result was a huge increase in the VIX overnight (before market open on Monday), as traders frantically covered their positions: TradingView This mechanically drove up volatility, which should have caused enormous losses to SVOL. However, when this was happening, SVOL's price action was relatively calm premarket - down, but not massively: TradingView At the worst point, SVOL was trading down no more than -9% on Monday from Friday's close, which indicates that the fund is very well built to handle spikes like this over time. Prior to this drop, we'd seen estimates that a big gap up to a 40 in the VIX overnight could (in theory) cause up to a 31% drop in NAV, which thankfully didn't happen: It's true that a spike up to ~40 isn't a perfect mapping of what happened on Monday morning. On one hand, these estimates had the VIX jumping more on a percentage basis, but on the other hand, Monday saw a larger nominal move to a higher overall VIX level. Thus, it's a bit of a tossup as to which would be a more damaging move - the projection, or what happened in reality. However, either way, on Monday the max drawdown from close to close was -9%, which is mercifully less than the -31% that was projected. In other words, SVOL is even more 'tanky' than realized, and should navigate future spikes in volatility well due to its unique hedging mechanism. Plus, SVOL's NAV has been recovering this week as the VIX has done its trademark move back towards the mean: TradingView Ultimately, we're simply more comfortable holding a larger position in this fund now that it's been through some paces. Risks That said, there are still some risks to be aware of when it comes to investing in SVOL. Considering that the VIX tends to spike up and then come down slowly, the fund is well built to withstand the front side of a move, then profit down the backside of one. However, if the VIX were to increase slowly over time, that's a price pattern that could cause considerable losses for SVOL. This is because a continually increasing price of vol and VIX futures would lead to a lot of small losses on a short futures position over an expiration period, which would lead to suboptimal performance. Something like this happened in early 2024: VIX (TradingView)SVOL (TradingView) Fortunately, this isn't likely to happen on a long enough time horizon to cause permanent capital impairment, as increases in risk perception are often sudden and tail-like in their movements and intensity. That said, it's still something to be aware of. Summary Taken together, SVOL just went through a trial by fire, and came out the other side relatively unscathed. Considering that this was one of the most important tests for the new fund over the last few years, we're happy with the performance, and would feel comfortable deploying a LOT more capital into this leading income ETF going forward. Plus, with a juicy looking 17% yield at the moment, we see fit to upgrade this high-yield vehicle back to a 'Buy' rating.  Stay safe out there!","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"Business Data","news_rank":0,"symbols":[],"gpt_button":0},"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":"4.29.1","shortVersion":"4.29.1","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/2457934872"}