In my previous blog, we compared a daily inverse index to a “true short” and discussed the increasing vega exposure in the S&P 500® VIX® Short Term Futures Inverse Daily Index over the past couple of years. In this blog, we analyze how the mechanics of a VIX futures index, a low volatility environment, and…
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In recent years, strategies selling volatility (and VIX® futures in particular) garnered substantial attention due to the low levels of VIX and the eye-watering returns achieved by associated benchmarks such as the S&P 500® VIX Short-Term Futures Inverse Daily Index (we’ll call it the “short VIX index” here for convenience). At the end of last…
With 2017 in the rear view mirror, we can look back and observe that short VIX strategies rank as one of the most profitable strategies of the year. The S&P 500® VIX Short-Term Futures Inverse Daily Index returned 186.39%, and selling VIX futures has become a popular income-generating strategy. 2017 was also a year marked…
As this week’s award of the Nobel Prize in Economics to Richard Thaler confirmed, the existence of behavioral biases in finance is no longer a controversial theory. People often prefer a small chance of a large gain to a near-certain chance of a small gain, even if the expected return from the latter is higher. …
Shorting VIX® was among the top strategies in the past year. XIV and SVXY both went up over 50% in Q1 2017 (~15% in March alone), almost doubled in the past six months, and returned ~180% over the past 12 months (see Exhibit 1). However, the declining VIX spot level can only explain part of…
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