VTS Community,

I received a ton of positive response to yesterday’s blog about what the results would be if a person just blindly followed the VIX futures term structure signals and was short volatility during times of contango and long volatility in times of backwardation.  You can view the entire blog here if you missed it, but the punchline is, pretty terrible.  In fact, that strategy would be no further ahead today than it was at the end of 2012 so essentially six years of flat performance which is unacceptable.  The moral of the story is, we need to be more sophisticated with our investing because these are complex products.  I will do a follow up to that blog soon with a few more interesting charts to answer some of the most common questions I received about it.

For today let’s just check in on the performance year to date of the main volatility ETPs that we know and love.

Every volatility product, both long and short, as well as our volatility benchmarks, are negative this year.  Across the board, negative.

The original inverse volatility product XIV was in fact terminated after the volatility spike in February and SVXY just barely survived so it’s not surprising that it’s down so much.  However even if we remove the Feb 5th aftermarket rebalance of the futures that went so horribly wrong, it’s still down about -40% this year.  Feb 5th made it much worse and then switching leverage factor added another hit, but the front-month short vol trade is still getting crushed this year.

I’ve said it many times and I’ll say it again, the ZIV is my favorite financial product on the market.  This is the inverse volatility product that trades the 4th – 7th month futures and it’s proven time and again to be much more stable than the front end products.  But the great thing is, it’s still explosive enough in the potential gains that we can still use it to great success if we’re patient.  It’s down this year, but a more manageable amount than the rest.

All the long volatility products of all leverage factors are down as well.  Now UVXY switched leverage a few months into the year so that will affect results a little bit, but from VXX to UVXY to TVIX, going from 1x to 1.5x to 2x leverage, they are down an increasingly larger amount.

I’ve included our volatility benchmarks as well which are the CBOE Eurekahedge Indexes for both short and long volatility so we can match those up to the actual vol ETPs.  These represent about a dozen hedge funds each that specifically trade in this volatility space so it’s a great representation of the performance of professional fund managers.  I’ll do a longer blog post soon breaking them down but you can see year to date they are both down a bit.  Nothing major and we’ll see what happens the rest of the year, but so far 2018 has not been kind to volatility investors.

Lastly, I’ve included that short VXX row.  Those are the results of holding a short VXX position but moving to cash every time the VIX futures invert and go into backwardation.  For some reason, despite my best efforts and numerous blog posts and videos talking about it, people on Twitter still think this is a viable signal.  I don’t get it, the numbers are there for all of us to see.  All it takes is a spreadsheet and for them to run the numbers themselves.

I have a few thoughts and potential remedies in the works for how to help people actually run these calculations themselves so stay tuned for that, but for now, at least the VTS community knows better  🙂



Current VTS Total Portfolio Solution Allocations

6.7% VTS Conservative Vol Strategy  –  Volatility strategy for lower risk tolerance investors

6.7% VTS Aggressive Vol Strategy  –  Volatility strategy for higher risk tolerance investors

6.7% VTS Tactical Volatility Strategy  –  Volatility strategy using stock replacement through options

50% VTS Tactical Balanced Strategy

30% VTS Discretionary Strategy


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