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How UVXY And SVXY Would Have Reacted In 2008 And 2011

UVXY would have provided substantial gains during the spikes in volatility in 2008 and 2011.

Backwardation aided UVXY in both cases, particularly in 2008.

With current market conditions, timing a falling VIX is less risky and a better strategy.

This is a follow-up to a previous article I wrote, titled "Profiting From Short Term Spikes In Volatility Using ETFs." I encourage you to read over that article before diving into this one. It provides some important background information on terms we are going to use. You can view the article here. If you are familiar with VIX terminology, I would continue on reading.

In the first article, we went over how to profit from a spike in the VIX, focusing on the downside profit. Now, we will observe how some ETFs would perform from substantial spikes in the VIX, focusing on upside profit.

My two favorite VIX Futures ETFs are:

  • ProShares Short VIX Short-Term Futures ETF (NYSEARCA:SVXY) 1x Leverage

It should be noted that these are not the only ETFs out there that track the VIX futures. If you prefer, these are some other ETFs that can be used with the same strategies we are going to discuss:

  1. iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX)
  2. VelocityShares Daily Inverse VIX Short-Term ETN (NASDAQ:XIV)
  3. VelocityShares Daily 2x VIX Short-Term ETN (NASDAQ:TVIX)
  4. ProShares VIX Short-Term Futures ETF (NYSEARCA:VIXY)

Let's start by taking a look at how UVXY and SVXY have performed since inception.

UVXY

I would have you look to the lower level chart for the clear continuous downward trend.

SVXY

Here, we see a clear upward trend, 529.77% per the chart. Not a bad return over three years.

What do these two charts have in common? They both do not include data from prior to 2011. The inception of both UVXY and SVXY fell in October of 2011. It also brings up a good quote "Past performance is not always an indicator of future performance." I am not sure who said it first, but the quote is repeated often and is a good example of my research findings.

We are going to take a sampling of VIX futures from two different time periods to see how these ETFs would have reacted to them. I found a great spreadsheet that is available for viewing, here. The author also offers his spreadsheet for purchase. This spreadsheet includes the theoretical prices of UVXY, SVXY, TVIX, XIV, and VXX. The author frequently updates the spreadsheet with current VIX futures data. This only affects current data, not historical data, which we will be using for this article. The example prices of UVXY and SVXY contained on my charts could be different than what you are viewing on the spreadsheet because of this update. However, my data charts exactly follow the historical values on the spreadsheet at time of this publication. Every VIX futures value on the spreadsheet, during the time periods we are discussing, was checked for accuracy.

I am only focusing on UVXY and SVXY in this article. The findings correlate to what the actual results of the VIX futures ETFs would have been. However, the actual performance of UVXY and SVXY could vary some, due to the creation and destruction of shares and operational expenses of the fund. If an event similar to the two we are going to review occurred today, you should anticipate high volumes on all VIX futures ETFs and ETNs. High volumes, from past experience, can affect the performance of the underlying ETF or ETN.

Let's get started!

First Time Period: September 2, 2008 -...


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