After yesterdays daily blog post about XIV Beta, I received a much larger number of follow up questions than usual so I think there’s lots of interest in this subject.  And fortunately there’s plenty for me to talk about, but I do want to split it up into much smaller parts so I don’t bore people.  I think 5 or 6 shorter blogs will be better than one giant one.


Today we’ll show similar charts for the ZIV Beta to S&P 500.  So just to review:

Beta is a measure of the volatility or systematic risk of a security with respect to the market

The XIV has a Beta to the S&P 500 of about 4.24 

The ZIV has a Beta to the S&P 500 of about 1.86


(I calculate my beta on S&P 500 moves greater than 1% to clean up some of the lower end noise.  Using all values, the XIV Beta is 4.42 and the ZIV Beta is 1.99.  It’s similar, but we see strange numbers near 0% moves that artificially inflate the long term average, which is why I filter it)



You can see that the ZIV in red is far less volatile than the XIV and this makes sense.  Remember the XIV is calculated based on rolling of the front 2 months of the VIX futures, where as the ZIV uses the 4th to 7th month.  The VIX curve is usually flatter further out in time, which is why the daily movements are less.


And just like we saw with XIV, the ZIV Beta is also getting higher with each passing year we move forward in this now 2nd longest bull market in history:




And the most recent points suggest a huge increase in 2017


So for anyone wanting to get into the XIV, just remember that recently it’s moving about 9X as much as the S&P 500.  It has seen large gains this year because everything is record smashingly calm and there’s only been a handful of down days.


But remember there is always a flip side to every coin.


There are 3X leveraged S&P 500 products out there.  Would you buy one right now?  And the real question is, if there was a 9X S&P 500 product, how much of your investment capital would you allocate to it?


Obviously I’m in the camp that feels caution is always warranted when we’re in uncharted waters, and I feel there’s warning signs abound, but if you are going to go rogue and buy anyway, hopefully these past two daily posts have shown you that you may be better off going rogue against my conservative signals using the ZIV instead.

It’s true that the upside potential is less, but I’m always the type of investor that will quickly point out, the risk to the downside is less as well.

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