A.I.M. Users Bulletin Board

[ls7550]

Hi Steve

If you held 17% VIXY, 83% S&P500 then that's somewhat like being long stock 83% (SPY) and short stock 5x times 17% (VIXY) = 85% short stock like. Net near neutral. Might as well just held bonds (or thereabouts).

Turning it around and holding XIV instead which benefits from Contango/Cost of Carry, if instead of 50/50 stock/bonds you held 10% XIV (which might be considered 5x leveraged stock = 50% stock like) and 90% bonds then both are 50/50 stock/bond like, but with just 10% XIV your maximum downside assuming bonds to be safe is 10% between rebalance points. I'd suggest that's broadly a better choice overall than using VIXY

A more conservative investor open to 30/70 stock/bond, might instead hold 6% XIV, 94% bonds and if rebalanced perhaps once yearly, and assuming bonds earned something, say 3%, then the potential worst year might be something around a -3% loss, whilst broadly rewarding of the order of a 30/70 stock/bond like return. That said note that that 6/94 XIV/BND example link indicates a -4.38% max drawdown since 2011 (worst calendar year -0.5%)

Also note that my 5x like assumption is just a personal historical observational thing. Fitted in the past (and has continued to do so since I made the observation a couple/few years back).

Regards. Clive.