UVXY, TVIX Capitalizing On VIX Futures Contango

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September 13, 2017 11:51am NYSE:SVXY

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An interesting shift has occurred in recent months that we have covered on a handful of occasions, but given today’s atmosphere and trading conditions, it is worth revisiting again today.


For years, the largest “Volatility” product in the marketplace was the “Long” structured VXX (iPath S&P 500 VIX Short-Term Futures ETN, Expense Ratio 0.89%, $1.1 billion in AUM). Recently, VXX has been overtaken by two “Bear” Volatility funds, SVXY (ProShares Short VIX Short-Term Futures ETF, Expense Ratio 0.83%, $1.4 billion in AUM) and XIV (VelocityShares Daily Inverse VIX Short Term ETN, Expense Ratio 1.35%, $1.3 billion in AUM) in terms of asset supremacy.

This has been more of a function of notable inflows into both SVXY and XIV in 2017, rather than outflows in VXX. These two “Short Volatility” funds have reeled in $840 million and $340 million respectively via creations, while VXX, in spite of punishing performance, has managed to attract more than $700 million year-to-date.

As we pointed out in today’s ETF Fund Flows recap, the latest move in Long Volatility ETPs is a bit perplexing. In instances like today, the VIX itself is actually up small to flat and at approximately $10.57, well above its lows back in late July where it actually traded below $9 very briefly (before soaring to as high as $17 in early August only to spiral back to current levels).

Meanwhile, Long Volatility ETPs such as VXX and the levered long UVXY (ProShares Ultra VIX Short-Term Futures ETF, Expense Ratio 0.86%, $536 million in AUM) and TVIX (VelocityShares Daily 3X VIX Short Term ETN, Expense Ratio 1.65%, $252 million in AUM) are literally cratering day after day lately, with UVXY trading at a new all-time product low this morning, and VXX, which recently underwent a reverse split, in danger of creating a new all-time low as well if this trend does not reverse.

While we have not seen a ton of redemption pressure this month in either of these long products (VXX -$14 million and UVXY actually has pulled in an impressive $183 million month-to-date), contango in the VIX futures markets are clearly hampering short-term performance, as it typically does, for these funds.

Thus, given this atmosphere that does not appear to be changing anytime soon, for in spite of a few “Flash Rallies” higher in the VIX the equity markets continue to march higher on relatively lower volatility levels from month-to-month, it is no wonder that investors have been flocking to “Short Volatility” products like SVXY and XIV and capitalizing on the contango situation.

SVXY-2017-09-13

The ProShares Short VIX Short-Term Futures ETF (NYSE:SVXY) was trading at $84.15 per share on Wednesday morning, up $1.42 (+1.72%). Year-to-date, SVXY has gained 84.99%, versus a 12.87% rise in the benchmark S&P 500 index during the same period.

SVXY currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #1 of 6 ETFs in the Inverse Volatility ETFs category.


Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.


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