Replace XIV with ZIV?

XIV timing strategies that were wise? enough to be out when XIV vaporized, will have trouble keeping subs.
What if you used ZIV to replace XIV?
What are the odds of a ZIV implosion?
I realize gains would be less, but so would DD.
It may be the best solution for now?

I asked one developer here about ZIV. And He said the performance will be less than SVXY and because of low volume there may be big slippage. Anyway he said he might try with ZIV. I think it will be stable than short term vol product but concern about low volume and ETN like XIV (That means it has same rules like XIV… If it goes more than 80% it will terminated)

Since ZIV sells VIX futures 7 months out, and buys VIX futures 4 months out, it would bee EXTREMELY unlikely for VIX futures at 5.5 months to double in value in one day causing a collapse of the fund.

This week has convinced me even more than ever that my philosophy has been right all along: use proven indicators to determine how short volatility or how long volatility the strategy should be at any point in time, and then use options to protect against a large unexpected market move. In my Margin strategy, I’ll use SVXY as a XIV alternative. In my IRA strategy, I’ll probably use a combination of XIVH and ZIV. With the options protection in place, both my subscribers and I can sleep well at night knowing the maximum loss is predetermined no matter what the market does.


Did you realize they halted trading of SVXY yesterday morning and then finally resumed trading it in the afternoon? Its still risky.

@AlgoSystems even though it was halted that is the point of his option hedges.
@_J do you always have the same max percent predetermined loss target or do you move it up or down at different times? Feel free not to answer if that is confidential.

Hi @JohnSnow2019, I understand what he was trying to do but I just meant that there are risks with these derivatives of derivatives so that the hedge is not really a 100% failure proof hedge. If it had closed trading then there is no protection at all. Anyways, its just my 2 cents worth of information…lol

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I’m definitely not claiming that there is no risk - one thing that was definitely eye-opening is how differently all of the VIX related products behaved. On Monday, there were massive variances in products that 99% of the time trade in a correlated way. Even today, as I type, after the dust has “mainly” settled?? VXX is trading DOWN by 2.5%, and TVIX and UVXY are trading UP by about 5%…in theory, that’s not supposed to happen. :slight_smile:

Throughout this week, the options market has actually functioned very well. The last SVXY option I held was a Feb 9 put at 90…which is currently trading at 77 with a .25 spread…and with SVXY at around 13, is functioning as expected. If SVXY would have gone to zero, or would have ceased to exist, the Options Clearing Corporation would honor the option at 90. So, assuming our overall financial systems, including the OCC, are functional, the options should provide excellent protection if matched appropriately with the underlying securities.

I do not have a predetermined maximum loss target, it is dictated mainly by two factors: how cheap or expensive the options are (when the VIX is low, and options are cheap, I buy them closer to the spot price to increase security and decrease the maximum loss), and how exposed the strategy is (if the SVXY position is only 10-20% of strategy value, the options protection isn’t as important because the maximum loss is already pre-determined by the position size.)

Thanks, David

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SVXY’s issuer broke the rule, which gave SVXY shareholder huge extra risk.
By rule, SVXY’s close on 2/5/2018 should be around 71, not 12. Because ETF(and ETN) 's close price print is at 16:00, not 16:15. If you watch how SVXY close everyday, you can see, everyday it closes at 16:00. After 16:00, it still trade, but there is no print and there is no change to its close price.
Look at VXX :VXX was also up huge on 2/5/2018 after hour, but that move did not change its close price, and its price now is at about the same level as 2/5/2018 close, which did not count on after hour move.So as VXX’s inverse ETF, SVXY shoud be at the same level as 2/5/2018 close, which exclude after hour move.If issuer liquidate their futures position after hour, they should take the loss themselves, not transfer this loss to SVXY shareholder.
In short, SVXY should trade at around 71 now, not 12.

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It is crazy to think how much difference recalculating and re-balancing at 4:15 PM vs 4:00 PM made! You’re right…if this would have happened at 4:00, SVXY would be multiples higher right now.

However, in looking at SVXY’s prospectus, here’s what it states: “The Inverse Fund seeks results (before fees and expenses) that correspond to the inverse (-1x) of the performance of the Index for a single day…A “single day” is measured from the time a Fund calculates its net asset value (“NAV”) to the time of the Fund’s next NAV calculation. The NAV calculation time for the Funds is typically 4:15 p.m. (Eastern Time)”.

Unfortunately, between 4:00 and 4:15, both the front and next month’s VIX futures had risen to ~33 and ~28, which was enough to send the Index from it’s prior day close of 56.28 to 110.37. This 90%+ gain in the Index resulted in a ~90% loss for SVXY. And in reality, based on the changes in the index between Feb 2 and now, SXVY is actually trading at more than twice what the Index would suggest…which tells me that they actually started buying back their short positions at lower prices before the 4:15 futures close.

It very well could have been the actual re-balancing process itself was largely responsible for the VIX futures dramatic increase in price between 4:00 and 4:15. Both ProShares and Credit Suisse (assuming they were using futures to back their XIV notes) would have been forced to buy back almost all of their short positions between 4:00 and 4:15, and the more they bought and the more the futures prices rose, which forced them to buy back even more, just to reset their baseline for the next day. Looks like a vicious cycle to get re-balanced.

It’s all a mix of fascinating, mind-boggling, and scary! And it’s time for me to go to bed. :slight_smile:

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Whatever SVXY’s prospectus says, is not important.
If SVXY should count on after hour move, it should do it everyday, not only on one day when it incurred big loss.
For 7 years, it closes at 16:00 every trading day, now came the big loss day and it closes at 16:15, and after that day, it closed at 16:00 again?
If SVXY’s prospectus means the issuer can decide whatever time between 16:00 and 16:15, it should say so clearly, so investor could measure the corresponding risk and decide whether they want to take that risk. But all the investors are unaware of this risk.
I bet if investors file a lawsuit, they will win the case.

Because the rebalancing takes time and the futures it needs to trade are more liquid before 4:15 than after 4:15, then it should not wait until 4:15:01 to rebalance. One can sue about anything, but I would hope that the plaintiffs would lose this one.

If there is a good lawsuit against SVXY or XIV, it would probably be related to disclosure, which was adequate for me because I had read some of the fine print, but perhaps not to others.

Actually, now that I think of it, I would have liked to have seen a quarterly disclosure on how exactly the rebalancing is done, and a clear explanation of how they usually cover their risk.

My understanding was that (a) the fund price always closes at 16:00, (b) the NAV is always calculated at 16:15, and © any differences (generally small, but not this time) are typically reflected in the opening fund price in the morning. That’s how Vance Harwood described it in his blog at, and that’s how @_J seems to be describing it here. Also, the earlier thread about apparent mispricing between XIV and its index in the days leading up to this probably (maybe) reflect the lopsided demand for the short trade, which led to the feedback loop of doom David describes well. Agree with @QuantitativeModels here too: CS is unlikely liable for much - they seem to have done what they said they’d do, and disclosed the risks too. That’s what a prospectus does. I pulled my last XIV shares out at $112 on Monday, and have been in cash and VXX since then.

From a quant developer’s viewpoint, the discrepancies introduced in these funds between the closing price and the futures prices at 4:15 create some usually small but persistent difficulties in backtesting volatility strategies using only End Of Day price histories alone. My former Battle Axe strategy was overfitted to the data partly as a result of the noise introduced by this very problem, causing underperformance (but not losses) over the past 11 months. I’ve replaced it with a new strategy now, which was set up last weekend (the new strategy has been in the works for quite a while) and started out with a VXX position on Monday (MultiVol Plus: I’ve tried to be very conscientious in not overfitting this strategy, and I have an article in preparation describing just how I’ve done so (will be published at my website and at Seeking Alpha).

Great point! In the first volatility model I built 3-4 years ago, I fell prey to using only end of day data, not fully realizing the impact, because “end of day” means different things for different instruments and in different scenarios. Ever since then I’ve purchased and use minute by minute data in all my models.