Putting Yesterday’s Loss in XIV/ZIV in Perspective

Yesterday’s loss in XIV (inverse VIX) was significant (-4.82% is always significant), but hardly unexpected. These products are volatile and moves like these are business as usual (which is another reason why they should be relegated to an appropriate percentage of your total portfolio).

To illustrate, the number of days, and then percentage of days, that losses in XIV exceeded yesterday’s move of -4.82%, each year since 04/2004:

20140613.Number

20140613.Percentage

I focus on XIV here because I’m assuming that most traders trading VIX ETPs (excluding those trading as a hedge) are biased towards short volatility at the moment given the state of the market, and XIV is the most popular of the bunch. The conclusion had we looked at ZIV (inverse mid-term VIX) in place of XIV would be unchanged.

Across XIV’s entire 10+ year history, these moves have occurred on about 8% of all days (18% of losing days) or about 19 times per year. It’s no fun for sure, but not a reason for concern yet unless we see further break down in the market from here.

P.S. I’m working on a FAQ page for the site to respond to a handful of questions that repeatedly come up in emails, and a few more that I feel the need to clarify. I encourage you to check it out here.

Good Trading,
Volatility Made Simple


(1) Data prior to the launch of XIV has been simulated. We’re able to do this accurately using a combination of the indices and the futures data on which XIV is based. Read more about simulating data for VIX ETPs.

Posted in Real-Time Analysis.