I know it’s not a great idea to dabble when it comes to vol product trading, but when the VIX popped today, I thought I’d try something a little bit different than my go-to strategy of selling UVXY calls. Don’t get me wrong — I did sell some UVXY calls, but on a whim I decided to go old-school and buy some common shares of XIV.
Suddenly, I felt like I was 18 again… buying common shares, receiving a fund prospectus in my inbox… all I needed was a Motley Crue poster on my wall and the nostalgia trip would be complete.
The feeling of deja vu overtook me, to the point where I actually considered buying some SVXY as well. Thankfully, I soon remembered that buying SVXY would cause the IRS to send me a pain-in-the-butt K-1 tax form. Plus, Seth Golden reminded me that I was already going to have to deal with beta slippage in my XIV long position; there’s really no need to double down on my beta-slippage breakfast by also purchasing some SVXY.
Still, it felt good to buy the XIV shares. Granted, it takes up a sizable share of one’s portfolio to buy XIV (which is starting to get a bit pricey, given its consistent price expansion over the years). Yet, it’s one of the safest ways to take a short vol position: it’s a defined-risk bet, with the max loss being whatever you paid for the shares. Besides, though it does suffer from beta slippage, it also benefits from the same contango that besieges VXX, VIXY, etc.
So, if you have room in your portfolio for a safe alternative to shorting naked UVXY/VXX calls, you might consider stocking up on a lil’ bit of XIV. After all, the classic hits are pretty darned awesome, wouldn’t you agree?