Visualizing Gains and Losses in VIX ETPs

Below I’ve shown gains (green) and losses (red) in excess of 20% for the VIX ETN XIV, going back to 03/2004 (1):

20140508.20

23 declines, with a median length of 21 trading days, and a median loss of -30%.

24 gains, with a median length of 41 days, and a median gain of 53%.

As one would expect, declines tend to be shorter in length, but also much more severe, with an average daily loss in declining periods of -1.6%, compared to just 0.7% in rising periods.

With about 2.3 declines in excess of 20% per year, investors should be prepared for (and unsurprised by) this level of loss, but what about bigger moves? Below I’ve run the same analysis, this time looking at gains and losses in excess of 40%, or what I would characterize as “game-changing” moves.

20140508.40

5 declines, with a median length of 61 trading days, and a median loss of -69%.

6 gains, with a median length of 321 days, and a median gain of 399%. Semi-interesting note: our current run of 651 days without a 40% drawdown is the longest in XIV’s history.

And finally, below I’ve looked at gains and losses in excess of a “miniscule” 10%, or what I would characterize as <yawn>.

20140508.10

65 declines, with a median length of 8 trading days, and a median loss of -19%.

66 gains, with a median length of 15 days, and a median gain of 24%.

* * *

What’s the point of these charts?

Nothing really other than internalizing just how incredibly powerful, for better or for worse, these VIX products are.

As Uncle Ben would warn, “with great power comes great responsibility, or at the very least Peter, relegate these instruments to an appropriate percentage of your total portfolio”.

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 Volatility Mechanics.