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We’ve now been holding our ZIV position since the 28th of August but we’ve not held a matching position in the XIV.  Remember I trade both strategies independently of each other because they do actually focus on a different section of the volatility market.  So there’s plenty of times we will be holding ZIV and not XIV, or vice versa.  It really depends on the volatility metrics.

VTS Tactical Volatility trades the XIV and VXX which derive their price based on rolling the 1st and 2nd month of the VIX futures.


VTS Conservative Vol trades the ZIV and VXZ which derive their price based on rolling the 4th to 7th month of the VIX futures.

 

Often times I see people talking about the ZIV as if it’s some kind of 1/2 leverage product of the XIV, but this isn’t the case.  The reason it tends to move less in both directions from day to day is because the composition of 4th to 7th month VIX futures that it holds tends to move less from day to day.

Let’s compare September 6th to one week later on the 13th:


See how the front end of the curve dropped a lot more than the middle section?  So it should come as no surprise that the XIV outperformed the ZIV over this time period.

 

* As safe investors through who focus on risk management, it’s very important for us to always remember that this works both ways.  During sell offs that front end may also move faster, and losses can accumulate quicker.  Food for thought since this historical period of low volatility can’t last forever.

 

So the products are different and we do need to trade each strategy independently.  A benefit of this though is that a combination of both strategies does add diversification and improve the risk adjusted return so that’s something to consider.

VTS 50/50 Combined Volatility

 

Current VTS Total Portfolio Solution Allocations

25% VTS Tactical Volatility Strategy

50% VTS Tactical Balanced Strategy

25% VTS Iron Condor Strategy

VTS Conservative Vol Strategy  –  Optional replacement for lower risk tolerance investors

 

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