A.I.M. Users Bulletin Board

[ls7550]

Re VIXY

Hi Steve.

Long VIX is akin to being short stocks in my book. Fine when share prices are heading south fast, not so good as a long term holding (decay). Its also like a highly leveraged position, I broadly assume being equivalent to a 5x leveraged position and revise exposure accordingly (1/5th scale, so $10,000 instead of $50,000 that might otherwise have been invested in 1x (stock)).

I personally avoid long volatility and hold the opposing side (short volatility) i.e. XIV as that captures contango benefits and has a broader upward reward expectancy over time.

Something along the lines of 40% stock, 30% gold, 30% hard cash is somewhat 'bond' like. XIV is somewhat 5x long stock like. So a synthetic 1x long stock might be held as 20% XIV (being somewhat 5x long stock like), 80% bonds. If bonds are held as 40/30/30 stock/gold/nowt then overall 20% XIV, 32% SPY, 24% gold, rest in cash (SHY). Which since 2011 produced a 14% annualised compared to 14.1% for SPY (total gains/dividends reinvested).

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&allocation4_1=24&allocation2_1=32&allocation2_2=100&symbol4=SHY&symbol1=XIV&endYear=2015&symbol3=GLD&symbol2=SPY&inflationAdjusted=true&annualAdjustment=0&showYield=false&startYear=1985&rebalanceType=1&annualPercentage=0.0&allocation1_1=20&allocation3_1=24&annualOperation=0&initialAmount=10000



In short, take care with VIX Steve, playing with fire is ok provided you know what you're doing and take the appropriate precautions (think of a number and divide it by 5).

Best regards.

Clive.

PS on a personal note, I prefer to swap out SPY that pays dividends for BRK-B that doesn't pay dividends https://www.portfoliovisualizer.com/backtest-portfolio?s=y&allocation4_1=24&allocation2_2=100&symbol5=BRK-B&symbol4=SHY&symbol1=XIV&endYear=2015&symbol3=GLD&symbol2=SPY&inflationAdjusted=true&annualAdjustment=0&showYield=false&startYear=1985&rebalanceType=1&annualPercentage=0.0&allocation1_1=20&allocation5_1=32&allocation3_1=24&annualOperation=0&initialAmount=10000 A combination of XIV, BRK-B and Gold, each/all of which don't pay dividends side steps any US dividend withholding tax (15% for a UK investor). So instead of a S&P500 fund that charges perhaps a 0.1% management fee, and a 2% dividend http://www.multpl.com/s-p-500-dividend-yield/ that has 15% withholding taxes applied (0.3%) for a combined 0.4% 'overhead', its more cost/tax efficient to use synthetics. Synthetics can also mean holding some domestic bonds, and working those bonds to yield a above average bond reward helps bolster overall synthetic stock total gain/reward.