VIX Workshop

The easiest trade in the market is in XIV and SVXY – just buy the dip, right? Wrong! In very calm markets that may be true. Gains in these funds are compounded daily as long as volatility is decreasing and futures are in contango. It really is a mindless trade when things go well. From January 1, 2017 to its all-time high on July 24, XIV rose 105%, in what was mostly a steady, daily rise with few interruptions. After late July though, the behavior on the XIV and SVXY changed. The overall term structure of the VIX futures is certainly a little higher than it was in July, but both of these funds are down 17% from their highs in the last 6 weeks, even though VIX continues to stay in the low teens. What's going on under the hood? Beginning in late July the market began to see frequent VIX spikes, on average once every 7-10 days. Although these spikes weren't high in absolute terms, on a percentage basis they were quite large: Date VIX HIGH % S