It doesn't track spot vix. According to the prospectus, it tracks spot vix PLUS OR MINUS a premium or discount. You can calculate this premium (discount) on their NAV page daily.
Because VIX was pretty low at launch, a lot more investors were betting VXUP, meaning VXDN got a steep discount. That number was nearly 25% discount for ONE MONTH! You'd have to be right by a lot to win with this vehicle.
Today's price of oil is based on future supply trend, and not present supply. Yes the market is still soaked in oil, but if the future is slightly LESS soaked, for any perceived reason, the price will move upward. That's why the price of oil today is based on futures.
That's not my position, no. I'm aware of how contango eats away at such a position, balanced by the swing to summer driving, and partially offset by the move the Fed is anticipated to make in June.
I don't have to be right. I have to be right eventually.
My "eventually"? Higher than now and before June. Contango can probably eat 8-12% per year so long "long" plays are nonsense.
It could go back to 16, but up 20% from lows, I'd think it's more likely to go up than down. All-or-nothing bets are for exceedingly small positions (gambling) or for suckers.
I'm making no predictions - just stating what some here may not know.
Iranian oil is considerably lower quality than most oil due to a few factors. One of these is their failure to properly maintain the underground reserves. They've tried to produce "more" and not necessarily kept the wells healthy. Yes, it still adds to supply for the local region, and it's worth mentioning they have no gasoline refinery.
Just throwing a few facts out there. If I were betting I'd call Iran insignificant and I'd pay more attention to domestic well count and "The Kingdom of Saud's" policies... for however long they can hold that cartel together under this pressure.
Sentiment: Long through April - watch out for the Fed, folks. Some of that is baked in, but June could be bad for Long oil.
"it is supposed to track VXX inversely"
NO IT IS NOT. It tracks VIX FUTURES inversely including contango and backwardation roll yield.
If you have a position, sell it, you don't know enough to make a play here.
4) Past relativistic comparisons - example "Well the last three years blah blah," nobody cares. It's wrong. It does not matter. The last three years cannot be used as a gauge for this year, especially because this year the market is not climbing out of a giant hole started at the end of '08. We've never SEEN XIV perform during a normal market, so past comparisons are IRRELEVANT.
Conclusion: Only SUMMATION math matters. Not comparisons, not VXX not VIX, not TVIX. Not comparisons to previous years. The summation math that matters requires a look at FUTURES and not VIX. The futures in question are different for ZIV and XIV so comparisons between these DO NOT MATTER. Then you need to check the futures daily AND the IV daily to see the corrective delta that will be carried into the next day. Account for this, and the rolling forward contango/backwardation and you'll see the decay.
When I do all of this, I'm literally within 1 penny each day.
I strongly suggest you "bad math" types humble yourselves rather than assume you are correct. I'd rather be humble and rich, than prideful and argumentative and poor. This calling for the SEC nonsense - who has reviewed this product more than once - is proof the math stands up.
Instead learn how it works BEFORE investing in it.
To the rest of you, my hats off,
First, let's analyze your premise - "my math says x, the performance says y, therefore y is wrong."
Could it be your math is wrong? Answer: yes. First check your premise. I see the same incorrect premise used to conclude there is something wrong. Rather than learn from this why you are wrong and correct for it, you're assuming, incorrectly, that the world is wrong and you are right.
Here are the top handful of wrong premises I see on this board:
1) Math itself - if you do not know how to calculate a SUMMATION formula (with a sigma symbol) any math you're doing is incorrect. It may be wrong by a little, or wrong by a lot. It does not matter, it is wrong. This is calculus level math, not merely algebra.
2) Failing to account for discounts and premiums. The market always has bids and asks, and sometimes this manifests as a discount or premium. On a bad day for XIV there will usually be a discount, and typically a premium on a really good day. This is reset daily when the IV publication comes out from velocityshares. If you don't have that site linked, you're missing a big factor. If the closing price was $37.00 and the intrinsic value (IV) was 36.76, you're starting the next day with a 24 cent premium that is probably going to fall off immediately. That may be contrary to the move in the futures.
3) Looking at the VIX, the TVIX or anything else - look those are nice to see, but this vehicle trades on futures, not the VIX. The relationship is there, but they are not the same. The futures often move contrary to the VIX because people are people, and they are speculating and attaching a relative premium/discount (not an actual daily premium/discount) based on what they think the future, not today, holds.
When the slope of the curve changes, this happens.
Short term futures moved in a different direction than mid term futures.
... again: charting volatility is literally meaningless.
XIV closed 53 cents higher than its NAV yesterday. Today that cap reconciled.
A couple of thoughts:
1) The intraday price does wander from the actual intrinsic value. I've seen it wander both higher and lower depending on the buyer's/seller's mood swings. The price tends to "true up" either at the end of the day or at the beginning of the next day.
2) The futures quoted on the CBOE site seem to be about 15 minutes behind the actual price of XIV.
In general, contango is quite thin right now, and a contango move above 5% is more comfortable to me. While always true, right now this vehicle can go either direction, as slight contango can become slight backwardation.
Generally if you're checking daily, that should be enough to make decisions.
Correct that the money could get wiped out. An event such as 1987 could wipe out XIV in a single day with a greater than 90% loss. That day, however, would result in circuit breakers today, so it's hard to compare the two.
In my opinion you cannot be in XIV and "tune out." You do need to watch the futures roll yield and be ready to exit. In addition, you're still taking a modest risk of a major single-day black swan event.
ZIV is a bit safer and less susceptible to this type of event, but I'm guessing it could still prove to be a higher risk.
In the end, it is your call. Anything in the market carries risk, but an S&P 500 mutual fund would be quite a bit safer if you have a long horizon.
VIX does not matter... not at all.
If you posted the VIX futures numbers you'd see they were different. Also because they roll-off a little each day you'd have to correct for this. Add backwardation which changes the direction entirely, and I think you're vastly over simplifying this financial vehicle.
I'd stay away from this until you fully understand what I'm saying here, and maybe even more ;)
This is based on futures for the 'fear indicator'. It's not the S&P up/down indicator and lately the VIX movers have been the global economy and ebola. I'd say the second of these is a greater concern than the first to the market based on today's move.
Watch for futures contango/backwardation and otherwise just leave it alone until it moves back north of 40. This will happen either on contango over some period of time, or a VIX move back to 12. It could be some combination of both, but I wouldn't stare at the chart all day. Check futures and let it ride unless it backwards, and my guess is in 3-6 months we're north of $40 again.
This trades on the futures not the VIX. The futures are what caused that move, and the math is consistent with that move. Stop watching the VIX, because it cannot be owned - only VIX futures can be owned by the funds (such as XIV).
You may also consider that as a matter of market history, things always fall faster than they rise when fear sets in.
This doesnt trade on the VIX. This trades on the forward two months futures.
When THOSE look the same, XIV will look as it did back when this started.
My advice, stop watching VIX, start watching CBOE's futures instead. There is no funny math, only 'funny understanding'.