How in the world can the long term expected value of XIV be 0? They must be assuming very, very long periods of backwardation at some point. I guess it's hard to know since XIV/SVXY have never existed in a bear market. It's possible we will never see a bear market again but seems unlikely we would be so lucky.
Direxion and Proshares have been sued by foolish speculators who purchased leveraged ETFs without understanding what they purchased. It wouldn't surprise me if the XIV prospectus has language about the long term expected value being zero to protect themselves in the event that they are sued again.
XIV and SVXY both use leverage that resets on a daily basis. As you probably know, XIV and SVXY both will be liquidated if the XIV drops 90% (or maybe it is 80% - I cannot remember) in a single day. I am not sure whether it is even possible for SVXY to drop 90% in a single day, given the circuit breakers on the Dow Jones which halt trading.
XIV tanked about 75% in 2011. If it does that again, it will be in the 5s again. I think of XIV more as a range-bound product. I don't think it will ever go to zero but it's a terrible investment here. If it prints 10 or lower, start dollar cost averaging into it and do so until it's back in the 20s.
Thanks for the input. I am going to pop out the prospectus again and see exactly what long term assumptions they are making that show this going to 0. If I remember right they had periods of contango and backwardation alternating over a several year period, with months at a time. This may be more realistic than the recent patterns in the bull market. Like they always say, when the easy money has been made and the trade looks like it cannot lose, it will lose. Like if I buy FNMA right now it will be halted, and I am tempted to buy it just to stop the insanity.