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The posts on this blog are opinions, not advice.
Please read our disclaimer for Indices
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[...] On February 8th, I discussed the use of the inverse VIX ETP (XIV) to collect the roll yield from the VIX futures. When stocks fall and volatility rises, however, such a naked short position drops drastically. From 4/2 to 4/10, XIV dropped from 12.29 to 9.94, and lost 19% of its value (it’s now back to 10.37). [...]
The Other Side of VIX
The last three months saw the VIX spot dropped quickly from 30-ish to 10-ish. No wonder XIV, the inverse ETN to the S&P 500 VIX Short-Term Futures Index, was among the top performing ETPs in January. Its return was 30.88% in January 2012 and 14.02% in December 2011.
S&P Indices General Disclaimer
XIV collects daily roll yield when: 1) the VIX futures curve is in contago, and 2) the VIX spot remains flat or down.
The backwardation we saw in Q3 of 2011 was reversed by the end of last November. Contango is back.
S&P Indices General Disclaimer
For investors who expect the equity market to move sideways or up in the near term, XIV is an interesting investment opportunity. The potential risk is, when catastrophe hit the market, long XIV investors have to pay. In this sense, buying XIV is similar to selling insurance policies.
Click here for more details on contango and roll of the S&P 500 VIX Futures Indices.