XIV historical data and pricing model since VIX futures are available (2004)

Click here to download all the XIV, front month VIX futures and contango and backwardation data since 2004. Note that the data was updated on October 20 2014 14:51:26 (California time).

The calculated XIV price is modeled based on VIX futures data. This allows to obtain the price of the XIV since the VIX futures started trading (2004/march) until now. The price model can also be used to forecast future XIV data based on VIX futures prices.

This is the model used to generate the data:

[1] For any given day n, calculate R(n) as the return that you would get by holding a combination of shorted 1st and 2nd month VIX futures from day (n-1) to day n.

Note that XIV is calculated almost exactly the same as the VXX as explained here. In the VXX case 2nd month VIX futures contracts are bought with the proceeds of selling 1st month ones. In the XIV case, starting with only shorted contracts of 1st month vix futures, 2nd month futures are shorted and 1st month futures are bought with the proceeds (reducing the 1st month vix futures short amount). This means that at all times a combination of 1st and 2nd month vix futures is short, obtaining the exact inverse of the VXX.

[2] Apply XIV’(n+1) = XIV’(n) + XIV’(n) x R(n+1)
Take as initial value the market value of the XIV on its first trading day: XIV’(1)=9.56

[3] Calculate the daily tracking error, F, by solving:
XIV(n+1) = XIV’(n+1) x F
With border conditions:
XIV’(N)= Market price of the XIV on the last trading day (N = day of the last close).
and
XIV(1)=XIV’(1)

The estimated XIV’ model, based only on [2] gives higher values than the market prices. That difference with respect to the market data is used to calculate the daily tracking error. The tracking error in the final model [3] is close to 2% per year and would be smaller if no management fees existed. That tracking error would only represent management fees if the XIV accomplished perfectly its supposed goal of replicating the daily inverse of the VXX.

This is how the model and the data looks like. Note that the graph was made with info up to the 4th February 2014 but the downloadable spreadsheet has updated data :

Looking at the data you can see that in low volatility periods, when the VXX is falling the XIV goes up and vice versa. You can also see that while the VXX has fallen around 99.8% the XIV has multiplied by 12. Thats equivalent to a 46.5% annual VXX fall and a 29% XIV annual increase. That’s maybe why some prefer to short the VXX instead of going long XIV.

The XIV has an almost 100% correlation with the SVXY, for which I also made a model. The only difference might be that the SVXY tracks it’s index slightly better and that if offers options. For the reason just explained the following discussion applies also to the SVXY.

The XIV had a very long and big run up from over 2 until under 25. This happened in the low volatility years of 2004-2006 when it peaked in February 2007. The extreme low volatility caused the VXX price to fall dramatically and correspondingly the XIV to increase. When volatility increased in 2007 the XIV fell violently. Notice how after bouncing under 10 in August 2007 the XIV falls back much more to under 2, lower than in 2004 ! That was in the 2008/2009 period of extreme high volatility which simultaneously caused the VXX price to more than triple for a while. After the 2008/2009 period it made a big come back, temporarily interrupted by a 2010 fall, to reach a bit under 20 in mid 2011. Then it fell back again to 5 during the period that started with the 2011/august volatility spike which in parallel caused the VXX to almost triple. It recovered, quite much, to around 37 in January 2014. Where will it go next !? With such extreme volatility but nonetheless growing in such an irregular fashion it is understandable why many traders like the XIV.

If you want to play conservative the goal is to buy it at the moment when you want to sell short the VXX. So at moments of extreme volatility, when it is highly probable that things are so bad that volatility will fall or not increase anymore. The product can have huge spikes if you manage to buy it in periods of very high volatility like in the end 2008 / begin 2009 or in August-Sept 2011).

I like the strategy of permanently shorting the VXX. Adding to it at extreme volatile periods. But having seen this historical behavior I think that I can have less risk if I short the VXX and also go long the XIV in periods of extreme volatility. Note that it’s not a hedge. It’s in both cases betting on a volatility fall. But like this half of the amount (the XIV part) has limited loss (can not lose more than 100%). While the other half has unlimited potential loss (if the VXX more than duplicates I could have more than 100% of paper losses). That strategy seems safer than going only short on the VXX since at least like that I reduce the unlimited potential loss to half of the amount. Actually the good thing about dividing the trade with both instruments (XIV and VXX) is that I could use much less than half for the XIV long because if it explodes, due to volatility falling from high levels, the XIV could multiply itself, while the short VXX can theoretically at most go down to 0. The total amount at risk could be reduced since I would need a smaller amount to go long on the XIV than the amount used to short the VXX to obtain the same profit. That’s a good argument that XIV traders often give. Not only do they limit the theoretical loss to just what they invested but they also invest less. So if you plan to short volatility it is worth considering to short the VXX and at the same time to go long on the XIV. Both have advantages, VXX has in the long run an almost guaranteed fall while the XIV offers a decent gain and limits the paper loss or margin call risk better and requires smaller amounts.

If you want to calculate new XIV values you will have to implement the formulas guided by what I explained here or by using the model definition above. It is good that you implement how to calculate the data in order to have a better understanding of the XIV dynamics. The XIV historical prices are available from yahoo finance. The VIX future prices are available at the CBOE website. You can use them to keep on updating the model since I may not update it regularly. The VXX data back to 2004 is here.

You may not have time or do not wish to implement the pricing formulas or want future XIV forecasts based on VIX futures values. I sell for 25 US$, or its equivalent on any currency accepted by paypal, the same spreadsheet with a data model for historical and future forecasted data. It includes:

1) Pricing formulas.
2) Forecast future values based on VIX futures values, with random market noise to see different outcomes.
3) Latest data update, and future updates if you don’t manage to do them.
4) Front month VIX futures, contango and backwardation data up to 2004.
5) Parameterizable model to generate buy signals.
6) Support on forecasting, modelling and updates.

Besides the historical and modelling data it has the advantage that you can understand how the VIX futures determine the XIV price. You may also use it to make forecasts of how the XIV will be affected depending on future VIX futures prices. It includes XIV price forecasts based on VIX futures values, with which you can play with, to estimate what the XIV price will be depending on different scenarios.

You can make the payment via paypal to my email [email protected] or with the button below. Via the paypal payment button, besides allowing you to use paypal, you may also chose cards such as visa, master, american express, discover or maestro. You may pay in dollars or the equivalent amount in the supported currency of your choice. Once paid I will be notified by email and I’ll send you the excel spreadsheet with the latest data and the formulas. I’ll gladly give you e-mail support if you need it. You may request an invoice by email if you specify it before or during the payment process.

Alternatively if you are in Europe you can send a transfer, free among EU members, for the equivalent amount to my European bank account (ask me if you want it).

Note that if you trade both the XIV and the VXX and are interested in the VXX pricing model I sell both for 50 US dollars, or the equivalent on any currency accepted by paypal. That would be cheaper than buying them separately (the XIV model alone for 25 US$ and the VXX model alone for 35 US$). I have also a model for the UVXY for sale, as well as a SVXY and a TVIX model. The more models you buy the less you pay, for example if you buy all the five models (SVXY+VXX+TVIX+UVXY+XIV) you pay 100 US$, less that the 40+35+40+40+25 = 180 US$ that you would pay by buying them separately.


Pricing Model



Originally I made a VXX pricing model after I shorted the VXX in August 2011 and panicked when I realised I hardly knew how it was priced. Acquiring the knowledge gave me the strength to hold and turn a badly losing trade into a handsome profit. I still trade the VXX up until today. Having done it initially for myself I was surprised to see many people adopting it. Some among them who trade with the XIV asked me about a XIV price model or how it would have behaved in the past. I thought about it sometimes a bit but never gave it time to develop it because initially I preferred shorting the VXX due to the faster decay. I finally did it when someone offered to pay for it and when I decided to start trading the XIV myself.

It’s basically a tool you can use to guide and feel more confident and under control with your trading !

Anyone else interested in sharing modelling or trading ideas feel free to contact.

Hope this data is useful and if you find any interesting patterns by analyzing it please do not doubt to let me know !

Cheers!
jrv

PD1 -> Why doesn’t the XIV return to the same level when the VXX goes up and down ? If the VXX goes from Price A to B and then back to A then the XIV should also come back to its starting price. Unfortunately that does not happen. No product has been created that can reach close to that level. If it had then the XIV would maybe be more than twice its value by now. It would be possible if a perfect inverse could be obtained, like the name of the product often (mis)leads to believe. But what the product does is to go up or down the opposite percentage of the VXX on a daily basis, but opposite in sign is not the same as an inverse. Many traders think that the VIX should behave on the long run like a mathematical inverse and get disappointed and poorer when they realized it does not.

PD2 -> How is Contango/Backwardation calculated and why does it affect the VXX and therefore the XIV price ? That is answered in the VXX blog post where it says PD4.

PD3 -> Why does the calculated data change as more data becomes available ?

That’s due to the way that the model is designed to learn from available market data and extrapolate. All calculated data changes depending on the amount of market data that the model learns from. Not only does the first 2004 calculated value change but all of them do.

A way to have a fixed initial 2004 value is by arbitrarily fixing it. But that would be probably an error since you can at most estimate it with ever growing and changing available data. That makes that initial value a variable too. At most you can calculate it by learning from the available market values.

Differences in calculated values happen every day. They are normal because the data is calculated all the way backwards to 2004 by taking into account all the available market data since the XIV started trading up until the last available market value. The model fixes the 1st and last available XIV market values and uses all the VIX futures market values in between to calculate the XIV and project it back to 2004 (see the XIV model definition above).

For example from 2009 to 2012 there is one less year of data than from 2009 to 2013. So its normal that the calculated values, including the first calculated value, on both cases differ.

The changes may look big and concerning but they are actually small if you consider that the annualized percentage growth of the XIV in both cases is almost the same.

You can also graph different series of calculated data taken in different periods and you will notice slight differences. No calculated data series is better than another, that depends on the market data quality. Most probably the more market data that you feed the model the better that the calculated data will be, since in such case the model will use more information to learn from.

Cheers!
jrv

About jrv

I was born in Spain and lived in Belgium, Chile, France, USA, Argentina among other places. Currently I am trying to settle down in a wild place. I am "retired", even though now I dedicate more hours "working" for my investments than I ever worked in the real labor market where I used to work in IT and Banking. I am a family man, I have a lovely wife, several sons and one step daughter. I have humble tastes, I like to stay home and read about companies and investments. I started investing at 25 before the internet bubble exploded. I did not know much about investing and liked technical analysis so my results were pretty bad. Fortunately I did not have much to lose. Some years later in 2006 bored of doing only real state investments and with quite a lot of money saved I opened an account in a cheap and excellent online broker and started again. This time I did not want to commit the same mistake, so I decided to follow a model. I heard that Warren Buffett was the best at making money via stocks so I started by reading a lot about him, all of his shareholders letters and several of the books that he recommended. I learned a lot, started applying his investing principles and reading a lot of 10K's. Digested news from lots of different sources. Basically I started buying very good and cheap companies and holding them for ever if possible and if nothing changed fundamentally. When the housing crisis started I was more than 75% cash. At that time I identified good companies at incredibly cheap prices so I invested most of my savings in stocks. In less than I year I doubled. By the second semester of 2009 I turned my software company into an investment vehicle and dedicated myself full time to it. My wife and I decided to change our lifestyle and moved from Belgium to the beach in a wild country. The goal was to keep fixed costs low in order to be able to live with a minimum 6-8% yearly return but specially to move away from the inhuman life of civilization and to have finally some peace and sunny weather to concentrate better on investing. Now I can think and study about companies 60 hours a week and I am doing great. I can finally do what I want full time and can proudly say that I have never been so happy, specially also with my just born 4th son, my other great kids and my sweet wife who supports me fully while I study most of the day and patiently wait for the opportunity to make a swing ! You can learn a bit more about my portfolio by viewing it at www.kuchita.com/view/sumo.php or you may learn more about me and my family by following the link "Author's site" from the menu above.
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41 Responses to XIV historical data and pricing model since VIX futures are available (2004)

  1. Pingback: VXX data and pricing model since VIX futures available (2004) | The Intelligent Investor Blog

  2. steven Emer says:

    Love the site…will be ordering the spreadsheet shortly. What about a strategy of shorting the vxx and shorting the xiv in equal dollar amounts?

  3. jrv says:

    Hi Steven thanks!,

    I’ve thought about it a bit. Precisely because there is a mismatch between the XIV and the VXX it seems it could work. But it would require rebalancing frequently when the amounts deviate, and that has a commission cost. There is also quite a big cost due to the short interest charged by the brokers, which depends from one to another.

    I also would need to backtest the strategy in order to see if the short interest cost, plus the commissions make it profitable. I’ve read about some people that have been done it and they say it isn’t profitable and that it is not as easy as it seems, but I never tried myself.

    Personally what I do is short only the VXX when the volatility is quite high and the VIX futures are also high and backwardation is disappearing. That’s the reason I made the VXX spreadsheet. I keep the shorts permanently and plan to add more every time those conditions appear again. So if the VXX triplicates I’ll probably add more. Since that could happen from much lower levels, like from 3 to 9 or from 5 to 15, I do not mind, actually given the profits I made I would not mind much if it explodes now. The trick is to short and hold long enough since the VXX has an average of 5-8% monthly headwind due to contango. That means that on average it loses that amount each month just due to contango. But on very specific times it disappears and backwardation takes over and the VXX triplicates or more. So the amount you short needs to be relatively small due to that risk.

    Wish you lots of profits and fun !

    Cheers!
    jrv

  4. max says:

    Hi jrv, on the topic of permanently shorting VXX I just started shorting UVXY by selling front month call spreads on any VIX spikelettes. I too expect this trade to benefit from decay due to daily rebalancing as well as contango on the way down and probably underperformance if the way turns up as well. Because the trade is net short on volatility I also expect it to benefit from typical overpricing of options on leveraged ETFs. The key drawback I see is that UVXY is currently less liquid. What might be other drawbacks of doing this trade versus shorting VXX?

  5. jrv says:

    Hi Max I replied here for others to read, maybe someone knows a bit more.

    Cheers!
    JRV

  6. Brian says:

    Hi jrv, I have a theory and a question. If one was to short the VXX and the XIV, all things being equal wouldn’t they negate each other? Unless both ETN’s were caught up in a serious contango because there almost always on the losing side of buying futures contracts and rolling them over to the next month. We know this is definitely true of the VXX but what about the XIV? Is the XIV in contango like the VXX? If so would it be profitable to start shorting the XIV now with the price around $14 to$15? With the s&p vix near historical lows can the XIV go much higher? If the XIV is in contango won’t it lose value even quicker if we have a spike in the vix, since there more likely to be on the wrong side of the trade? Please let me know what you think :)

  7. jrv says:

    Hi Brian,

    VXX goes down faster than XIV goes up so in theory shorting both the VXX the XIV should work out. But that’s only theory because you have to account for transactions costs. Short interests costs. New transactions costs since you have to constantly rebalance so that the amount on both sides of the trade remain equal. Bid and ask spreads also are a headwind and are not in your favor, specially when volatility increases…

    So it’s far from clear that after taking that into account you can manage to make money. Best thing is to back test it to be sure. I have not done it but I read some people did and did it also in practice and it was not as easy as it seems.

    VIX futures are almost always in contango. By definition it’s not evident to talk about contango in all derivative products, only with futures. But the XIV is a derivative product of the VXX which in turn is a derivative of the VIX futures so talking about contango for them does not make perfect sense. What is sure until now is that VIX futures are most of the times in contango and that affects the VXX negatively. That happens due to how it is constructed since the VXX is constructed by selling cheaper 1st month futures to buy higher priced 2nd month ones, so the contract base is constantly falling with contango (the inverse happens with backwardation). Since the XIV is related to the inverse of the VXX contango affects it positively, but mostly on a daily basis, not necessarily in the long run.

    XIV tries to be an inverse of the VXX. But its only a daily inverse, on the long run it has tracking errors. That’s why shorting the VXX and going long on the XIV seems like a potential hedge trade.

    Shorting the XIV now is equivalent to going long on the VXX, it all depends on your view on volatility and what will really happen in the future, it’s far from sure you’ll make money. But if you are very sure that volatility will increase enough to compensate for contango or even to turn it around to backwardation then you can make a fortune if you’re right.

    I think contango is too high now to go short on the VXX or long on the XIV. I do not consider that the VXX is really low, since it depends on a weighted average of the fist and second vix futures which are not specially low. So personally I would not initiate new longs nor shorts now. I would at most short the VXX if the volatility was very high but that is also not the case. I do have some short positions but they are now quite small because they fell in value due to the VXX fall and I keep them because I believe that in the long run the VXX is designed to go to 0. In a a sense it already is in 0 compared to its initial value. In conclusion I would not add more shorts and neither go long now. I just initiate new positions in extreme situations, when I am very sure that probabilities are on my side which is not the case.

    Cheers!
    jrv

  8. Brian says:

    Hi Jrv, I think you misunderstood my strategy. I want to go short both the Vxx and the XIV. Because if both are in contango eventually they will both go to 0. In your opinion is theXiv in contango, especially when it is going down. I’ve noticed the vxx is more in contango when it goes down and backwardsation when it is going up. I don’t believe in going long any etn. The same thing is happening withe relationship with the USO and the DNO. If you had gone short both of these years ago you would be way up. By shorting both you avoid a margin call and profit from both losing value, right?

  9. Brian says:

    Hi jrv, I’m back. I did a little math. If one had shorted the XIV at $10.10 and the vxx at$32.18 on 8-15-2011. You would be short a total of $42.28. One year later on 8-21-2012, the XIV was $14 and the vxx was at $11.50. So now your short at $25.50. Without even making adjustments like selling more of each as they go higher this appears to be a substantial 1 year gain. In the real world of trading will this strategy work?

  10. jrv says:

    Brian sorry I meant: “in theory shorting both the VXX the XIV should work out” I changed that part of the comment. So yes in theory there’s a lot of people talking about shorting both but from what I’ve read when they do it in practice it does not work out so well. Problem is that you still have to consider the bid/ask spreads, rebalancing costs and short margin interests.

    VXX will for sure go to 0, but XIV being the inverse of the VXX does not go to 0 with contango it goes up with it. Actually the XIV if you model it is far from going to 0. It as gone up since 2004. And in the years of huge contango (from 2004-2006) it went very high. It goes down with backwardation.

  11. jrv says:

    Well for that period it would have for sure worked. But if you had a volatility spike instead of that then the VXX would have gone up much faster (it can triple or more) than the XIV down. At most the XIV loses a lot of its value but not enough to compensate the VXX tripling and that would be a big problem if you did not rebalance.

    The advantage of shorting both is that XIV offers protection if the VXX explodes but that protection is limited if you don’t rebalance.

    In any case the VXX is for sure going to 0 so just shorting that is enough. The key is not to short too much.

    You may do the exercise of shorting both in July 2011 to see what I mean.

  12. Brian says:

    Well I did the math if both were short on July 1st, 2011 and the total short position was$39.29 still way above what it is today andi believe even more in the future. I did short only the vxx a few months ago and when it spiked I got a margin call. Since then I’ve been looking for a way to take advantage of this flawed etn called the vxx. I figured there has to be a way to make money, avoid another margin call, and not have to time the market. I believe that you can sell these 2 ETN’s at any time in equal amounts and in one year you will have a considerable gain. I think if you keep at least a 30% cash position you shouldn’t need to rebalance anything to keep from getting a margin call.

  13. jrv says:

    If you shorted last year before the VXX peak from the low 20′s to 55 it could could have gotten you in trouble at a certain point, for sure if you shorted too much, even if you shorted the XIV, because the XIV just lost half of its value so it would not have protected you enough. It would have been worse if you did it in 2008. Also consider that you would have a lot of money blocked at a time when there would be other attractive opportunities.

    If you do not rebalance then you lose the initial protection, specially when things turn bad and the VXX gets bigger in relation to the XIV. The more it gets out of balance the more risk you run. Make sure you can withstand financially and psychologically the pressure in such a scenario.

    If you had a margin its probably because you shorted too much and should therefore be specially careful and test well what you have in mind. Then again if you back and forward test it very well and are very sure you should go for it. All I can tell you is that I don’t think it’s as easy as it sounds and from what I know several people are attracted by shorting both instruments and haven not done well. But a good way to be sure is to do it, you may always start with small amounts.

  14. Brian says:

    I’m not a day trader. I like to initiate strategies that work over time. Since the vix is so low right now I’m going to overweight the XIV since it doesn’t drop as fast as the vxx goes up. As the volatility goes up I will start initiating positions in the vxx. This way I will hopefully create a spread in price points. Always owning more of the xiv when volatility is low and more of the vxx when volatility is high. This should offer more protection and more potential profits in the long run. I will definitely take your advice on small amounts to test my theory. Don’t you think shorting the XIV with the s&p vix around 15 is similar to shorting the vxx when the s&p vix is around 50? I really appreciate your thoughts and opinions. I live in Florida and I don’t know anyone who understands the market. Most brokers are just salesmen and just tell you to buy mutual funds, which is what I’ve done with retirement money. Again thanks for your help, Brian.

  15. jrv says:

    “Don’t you think shorting the XIV with the s&p vix around 15 is similar to shorting the vxx when the s&p vix is around 50?”

    Hi Brian, I’d definitely short the vxx with s&p vix at 50. But not necessarily short the xiv with s&p @15 and neither go long on the vxx in such case. The reason being because the xiv/vxx depend on vix futures, not on the vix directly. And vix futures are not specially low now.

    I like shorting when volatility is very high because then it tends to go down fast so shorting the vxx makes sense then. But on the other hand when the vix is low its futures may not be so low and volatility can remain low for years like during 2003-2006. That’s why shorting the xiv based on a low vix is not something I like to do. I would maybe do it of vix futures were low, but it’s not the case now.

    For example the vix is up today 1 point (6-7%) but its futures are flat, that’s why the xiv/vxx are hardly moving since they depend on the futures which are not low nor necessarily moving up. For sure we will have huge vix explosions several times in the future, but it could come from much lower levels, or in several months from here, as I see it it’s impossible to time it. Only sure thing I see is that VXX tends to 0 but to avoid risks it’s better to short it when volatility is extremely high and stay out or short just a little in the mean time.

  16. Shiv Kashyap says:

    jrv,
    Thanks a lot for sharing your ideas.

    I have a couple of quick questions on your XIV spreadsheet.

    1. How can values under “VXX short profit” be all positive. For example, on Dec VXX was shorted at 28.15. Following day price went up to 29.79. How can the profit be +0.942?

    2. Are these numbers percentages?

    Thanks again

    Shiv

  17. jrv says:

    Hi Shiv,

    It’s 1 minus the VXX % percentage change versus the prior day.

    1 means that the VXX did not change with respect to the previous day. 1.1 means it went up 10% and 0.9 means that the current price is 90% of the price of the previous day, in other words it went down 10%.

    In your question the profit would be negative: 1-0.942 = 5.8% loss

    1.01 means that the VXX went up 1%
    0.99 means that the VXX down 1%

    I changed the name to: VXX short profit (>1) loss (<1)
    in order to avoid confusions. So a VXX short would have a profit if the value is bigger than one and a loss if smaller than one.

    Cheers!
    jrv

  18. Shiv Kashyap says:

    Hi jrv,

    Thanks for your prompt response. I assume XIV spreadsheet can be used for SVXY by changing the multiplier (i.e. SVXY/XIV).

    Regards

    Shiv

  19. jrv says:

    Hi Shiv, That’s a simple and good idea which should work.

  20. Tim says:

    Hi jrv,

    Very interested work. I am very curious as to how well the XIV would have done from 1996-2003. I am not sure if you have gone back any further than 2004 on your charts yet but if you had an estimate of what you believe it would have looked like i would really appreciate it.

    Thanks,

    Tim

  21. jrv says:

    Hi Tim,

    I have no data since before 2004 because I based the model on the VXX and the VIX futures and the latter are only traded since 2004.

    Cheers!
    jrv

  22. GV says:

    Hi jrv,

    Absolutely great work !!

    I was thinking of going long on XIV and buying puts on SVXY as a hedge for any dramatic fall in XIV. Will your spreadsheet be able to give Buy and Sell signals for XIV ?

    Also how is the data updated in the spreadsheet daily? Will you send a daily update or do we go to a specific site to pick up the data?

  23. jrv says:

    Hi GV, Thanks ! The data is not automatically updated you would need to do it yourself it from a website like the CBOE. It’s explained in a sheet tab how to do that, if you download the spreadsheet with no formulas and check that tab you will see how. Or you may ask me to do it if you are not able but I do not necessarily do it on a daily basis. You can updated as frequently as you wish. Once you do it a couple of times you will see that its not too difficult.

    I can also every once in a while send you updates. When some others ask for them Ill just copy you in the mail. But there is no guarantee when that will be done, usually it’s at least once every 2 or 3 weeks.

    Using the data you can make a model to generate buying or selling signals. That’s a reason some people use it. I have not implemented it myself because there are infinite buying/selling model possibilities and depend on the rules that each trader uses.

    Best wishes on your trading!
    jrv

  24. Dan says:

    Hello! Great site.

    I am wondering how accurate your model predictions are for future VXX prices.. I downloaded the spreadsheet today and see that you have price for VXX going out to 04/16/13. Historically, how good has this model done in predicting that price?

    And maybe more importantly, how accurate are your future cont/back prediction?

  25. Dan says:

    Oh, and are you just taking the closing VIX contract prices for the VIX 1st Month and VIX 2nd Month to get the cont/back?

  26. jrv says:

    Hi Dan, Thanks !

    I would not trust the future VXX values. It’s a pricing model that will tell you quite precisely what the VXX price will be depending on the VIX futures. But predicting the VIX futures or contango is not possible I think.

    What you can do is precisely know how the VXX will behave depending on how the futures move. So if for you think that in a month or more the VIX futures will be X and Y you can have an idea of what the VXX price will be by then, but you X and Y could be very wrong.

    It also lets you quantify how much contango/backwardation affects the VXX price. The precise future contango values are not possible to predict neither, you might guess or have a specific view on them but that probably depends and changes a lot with every trader. Historically (last decade) contango has been majorly predominant, Im not sure why, but hope it continues like that, because I’m short on the VXX :).

    Cheers!
    jrv

  27. jrv says:

    I take the VIX settlement prices from the CBOE site here: http://cfe.cboe.com/Products/historicalVIX.aspx

    From the files VX H3-CF and VX J3-CF

  28. Dan says:

    Nevermind, I see you are though I see 17.60 on the front month close yesterday..

  29. jrv says:

    settlement prices, a bit different than close prices sometimes

  30. Dan says:

    Great, Thanks!

    What I find interesting is the persistence of trends in the VIX being in contango/backwardation. Outside of a few instances it stays in either for a descent duration..

  31. jrv says:

    Very remarkable indeed, never understood well why that happened.

  32. Dan says:

    So right now you would just take the close of the April Contract divided by the close of the March contract?

  33. Dan says:

    NM.. I see you take the difference of the two and divide it by the near month..

  34. jrv says:

    Hi Dan, to calculate contango or backwardation I use:

    100*(1-1st_month_vix_future/2nd_month_vix_future)

    bigger than 0 is contango
    smaller than 0 is backwardation

    I use the settlement prices from the CBOE site. You may use the current real data too.

    Cheers!
    jrv

  35. Black Swan says:

    I started going long SVXY (which is very similar to XIV) some days ago and your spreadsheet has been very useful to have an idea of what kind of volatility I should expect, which is much uglier than what has been seen since SVXY was created.

    By making a chart of the B column you can easily see how volatile this ETF is. http://img819.imageshack.us/img819/3218/hypotheticalxiv.png

    There was an hypothetical maximum of $36.41 on 2/22/2007, and after that a minimum of $2.13 on 11/20/2008. That’s really sick, nearly a 95% loss in 21 months. But in the other side we can also see that this ETF would had increased in 2281 days from 4.9 to 21.27. That’s an increase of more than 0.06% per trading day or about 17% per year. JRV, do you think that we should expect that kind of moves and profits in the long term?

    I have read many studies that calculate about a 4%-5% monthly decrease in VXX, shouldn’t we, therefore, expect an increase of that amount in XIV/SVXY minus VXX and XIV/SVXY costs? That’s much more than the previously calculated 17% per year.

    I have made a simulation of an ETF that does every day the opposite of VXX (of your simulation of VXX since 2004) and my results are quite different. I know that I should take into account expenses, but the difference shouldn’t be so big. In this case, in that 2281 days period its value is multiplied by nearly 13 instead of only 4. I can send you that spreadsheet if you want.

  36. jrv says:

    Hi Black Swan !

    The XIV model adjusts to the available market data by using the opposite of the daily return of the VXX and taking to account trading costs. So if VXX moves x%, XIV moves -x% that same day. That is not the same as a mathematical inverse 1/(1-x). This causes that it does not follow the same path of the VXX. I mean if in a few days VXX goes from A to B and then back to A, XIV will not go from A’ to B’ and back to A’.

    It seems to me that models are as good or bad as their assumptions. The model I used is explained by following the XIV link on the menu. It adjusts quite well to the available market data and projects where that data is not available. It is based on the VXX price which is based on the VIX futures price. That means that if you know the VIX futures you can have a good idea of the XIV price. But it is to me impossible to predict what the VIX futures will do, therefore also impossible to predict what the XIV will do. At most I could say something like: if the VIX futures behave like this then the XIV price should behave like that. But even that can change if the way that the XIV is managed changes.

    I do not know if we can expect the same level of behavior in XIV/VXX or VIX in the future. I’m pretty sure there will be violent moves sometimes but I do not think they are predictable. We could have 10 or 20 years of high or low volatility. Or 5 years of altering high and low extremes. Anything could happen which would make the past 10 years’ behavior look different than the next 10.

    Feel free to mail me to discuss our common interests, you can write me via the contact menu and I’ll reply with my e-mail.

    Best wishes !
    jrv

  37. Black Swan says:

    Thank you for your reply, I’m starting to regret from having bought SVXY… It seems like shorting UVXY is much better. I have sent you a message using the contact form (I hope I haven’t done it wrong).

  38. north of the border says:

    Hi,

    Great article, I also follow Bill Luby bog and am wondering if you know of similar long and short volatility products on other exchanges around the world. I found VSTOXX but can’t find if or where options trade on it. Would be great if a similar products were available on the FTSE and NIKKEI

    Thanks for any info

  39. jrv says:

    Hi north of the border,

    I really do not know. I do not remember having looked for that. I you find something out let me know, I’m also interested !

    Best wishes,
    jrv

  40. ken says:

    I notice that your spreadsheet from the 16th already has figures populated for the VIX 1st and Vix 2nd as well as the Cont/Back for well into October. How do you get those figures seeing how the CBOE only posts current or past dates?

  41. jrv says:

    Hi Ken, thanks for the question. Those future values are arbitrary and depend on your view of the future. You can use those values or any other values you prefer, along with the VXX pricing model, to calculate possible future VXX and XIV prices. That’s a reason why its interesting for traders to use both models. Like that you can project the XIV price based on your estimation of the evolution of the VIX futures.

    Cheers!
    jrv

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