Volatility risk premium less stable source of Alpha through XIV
As volatility is becoming more violent and frequent and generally on the rise, the source of alpha through XIV ETN products which shorts second month VIX futures to buy front month futures back is becoming less stable.
Whist the VRP (Volatility risk premium) remains technically, the period of rough water will err on the side of the statistically unlikely in terms of XIV returns. Held long enough it should remain its upward trend but due to -1x leverage and associated convexity (Volatility drag) will further eat away at its performance.
I would suggest avoid playing roll yield or VRP through ETN's whilst the water is rough, stick to futures / options / proxy plays - not because one cannot continue to do this successfully, but that there is a growing chance of continued underperformance.
Whist the VRP (Volatility risk premium) remains technically, the period of rough water will err on the side of the statistically unlikely in terms of XIV returns. Held long enough it should remain its upward trend but due to -1x leverage and associated convexity (Volatility drag) will further eat away at its performance.
I would suggest avoid playing roll yield or VRP through ETN's whilst the water is rough, stick to futures / options / proxy plays - not because one cannot continue to do this successfully, but that there is a growing chance of continued underperformance.
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