langley59 wrote:Buying and holding the ProShares short VIX short term futures ETF 'SVXY' has returned approx 1600% since inception 6 years ago. A modified buy and hold strategy of holding a core position and then adding to it when vol spikes and SVXY falls, taking profits on the additional positions as vol settles down again and SVXY rises again returns even more.
This is what I wrote in my first post on this subject and I stick by it. We should realise that volatility has been exceptionally low over the past year or so, a more normal level over ten years is 15 to 20. I have run this strategy for a number of years but had been out of the market since late last year as I became wary of the prolonged abnormally low level of the VIX and the possibility of a shock. Well we certainly got that on Monday and I viewed it almost as a reset of SVXY back to when it started in 2011 and an opportunity to load up again in the 10s. I have never held more than a small core position long term and only ever loaded up when volatility spiked, taking this extra risk off again once it settled back down.
Having said all that the blow up of XIV has caused me to rethink. I deliberately use SVXY, an ETF with no poison pill clause in the prospectus unlike XIV, an ETN with said poison pill clause. Going forward rather than contango harvesting through SVXY I may consider just shorting the VIX futures when VIX spikes for a short term trade. Intuitively it feels dangerous shorting something with unlimited upside however as someone once said VIX is like a feather in the wind, it may get blown up high above street level but it always settles back down. Again just my thoughts, not a recommendation, this is high risk stuff.