Checking in on XVIX


For the uninitiated, XVIX is designed to capture contango in near-term VIX futures while staying neutral to short-term changes in the VIX (read more from V&M and Only VIX). Specifically, the ETN maintains a 100% long position in VIX mid-term futures, plus a 50% short position in VIX short-term futures, rebalanced daily.

Using a mix of actual XVIX data since the ETN launched and the underlying S&P 500 VIX Futures Term-Structure Excess Return index before that, I’ve estimated XVIX results back to 2006. The dotted line denotes when XVIX launched (1).

[logarithmically-scaled, growth of $1]

For some context on just how well the ETN stays neutral to short-term changes in the VIX, the next graph shows XVIX (red) compared to the play du jour XIV (inverse short-term VIX, grey).

[logarithmically-scaled, growth of $1]

A significant increase in medium-term contango after the ETN launched effectively killed the goose that never got a chance to lay the golden egg (read more from Six Figure).

But I thought that XVIX deserved a mention because of the consistently negative results over the last 4 months. Zooming in on 10/2012 to date:

[logarithmically-scaled, growth of $1]

I haven’t crunched the nitty-gritty numbers yet, but I’m assuming that increasing contango in medium-term futures relative to short-term futures is responsible for taking XVIX negative.

It’s too early to get excited about, but if this trend continues, it might be useful play for VIX-neutral returns, and it’s something I’ll be keeping my eye on.

Happy Trading,

(1) The best laid schemes of mice and men often go awry.

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2 Responses to “Checking in on XVIX”

  1. 1 Dan Palumbo

    I am very (successfully) active in volatility etf’s and find your work to be one of the few reliable fact and quant based (versus opinion based) efforts out there. Thanks.

  2. 2 E_Redd

    This post begs the question.. what is the driver behind the increased contango in the mid-term vix futures, and under what scenario could the curve flatten out and XVIX regain its backtested glory? Or is this a permanent regime shift?

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