Regardless of what is causing the current volatility, it has been a GREAT time to do sell covered calls that are a good distance out-of-the-money and expire in 1 to 2 days. Premiums on cash settle instruments (like ES) are very attractive and contribute significantly to offsetting some of the losses we’ve seen this week.
I have finished reconstructing the NAV’s for both SVXY and XIV and have come up with the following:
There IS an advantage if you go for the fund with the smallest premium compared to its NAV, but it’s a fairly small one. Most of the time the NAV’s will follow each other pretty closely, giving only a couple percentage points difference at any given moment. Days where the divergence is bigger are usually days where something is going on in the markets. During these days making a switch to the ‘cheaper’ fund is profitable, but that’s assuming you could catch trades at the exact opening/closing values, which on volatile days is all but certain.
Days where the divergence is really big (>1%) it becomes a different story. These days are very scarce though. Assuming you can trade both products, it seems wise to opt for the cheaper one to boost up returns by a fraction. But it looks like you won’t get much more of an advantage than that in the long run.
All in all this pretty much confirms the conclusions drawn by David in his previous post.
Footnote: XIV already gave up some of its premium yesterday.
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This this is valid if you want to use one vs the other, but trying to arbitrage the two might not be worth it if there is costs on the short side.
lets hope not too many strategy still holding $svxy/$xiv or shorting $uvxy/$tvix after Tuesday. from what i can tell most good vix strategy are in cash or trimmed position by 50%+ after Tuesday.
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The premium difference reached a new high yesterday. XIV is now trading at a 6% premium (here shown inverted) compared to its own NAV and a 4.5% premium compared to SVXY.
I know it was a volatile trading session yesterday, but this marks a new record difference.
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Until the spread between NAV and market price tightens up for XIV, I’ll be using SVXY instead for my VIX system. XIV acting like a closed end fund now. Ridiculous.
Massive divergence in performance from XIV/SVXY today. -31% vs -14%.
“yuge” - DJT
Both XIV and SVXY down huge in afterhours trading. Trading in 30s or lower. Strange. Hope nobody went long in those two today.
Forced liquidations…
Seems like both XIV and SVXY might be terminated (close to 80% drop)
As to XIV, I don’t know. During regular trading hours, XIV fell only 14%, but after hours, it has dropped ANOTHER 79%. At 5:42 pm ET XIV is trading at $20.
So the 80% drop rule was met if you consider after-hours trading.
Someone should read the prospectus to check. My guess is that it won’t consider after-hours prices if it’s not required to do so.
[I should note that I have substantially edited this post sometime after XIV dropped 80%.]
The NAV’s for both XIV and SVXY closed the day down more than 95%. I think the funds refer to the NAV to decide on liquidation. If so, then that’s definitely a wrap for XIV tomorrow. SVXY probably as well.
Serious question though: what it will do to VIX futures? and stock market overall? Are we going to open limit down tomorrow?
Grab the popcorn… what do the algo’s do with seeing liquidation of vix tomorrow.
WOW! What a crazy day! Glad I was on the right side of it!
None of the Volatility ETPs that I follow seemed to track. At one point after-hours VXX was up about 80% but TVIX was only up about 105%, where it should have been 160% in theory, and XIV was only down about 45% where it should have been 80%. A lot of it has now normalized somewhat, but still, Wow!
Here’s that the XIV prospectus says:
VelocityShares has the Option, but not the Obligation to terminate in one of many scenarios; here’s the applicable one: "if, at any point, the Intraday Indicative Value is equal to or less than twenty percent (20%) of the prior day’s Closing Indicative Value; "
So, it’s based on IIV, not share price, but it sounds like it can be either regular trading hours or after hours. It looks to me like the IVV was down more than 80% based on the futures prices shortly after the close.
I guess we’ll see in the morning.
Wow!
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SVXY is hosed as well.
http://www.quotemedia.com/portal/quote?qm_symbol=svxy.iv&searchBySymbol=symbol
NAV on XIV shows its worth $4. No clue why its trading higher then that. Dumb money buying thinking it pops tomorrow but the underlying shows that its gonna collapse and be closed tomorrow.
Wow… Great job!
Nice work!
All very interesting! So it seems to me that if they were able to unwind their dangerous positions and retain a $4.22 IVV, why would they close the note? Now it just resets for tomorrow at $4.22 instead of $115 or wherever it was yesterday. From that point it would take another 80% daily drop to put them back into the potential termination position. I may be wrong, but as long as they’re still solvent, why close it?
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Now many people are talking about terminating XIV and SVXY. Then all Vol. strategies at C2 will be closed down too?
