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Horizons ETFs Management (Canada) Inc - BetaPro S&P 500 VIX Short-Term Futures Daily Inverse ETF Class A BTTPF



GREY:BTTPF - Post by User

Comment by dm27427on Feb 23, 2018 5:37pm
139 Views
Post# 27612441

RE:A straight forward question for Contra

RE:A straight forward question for Contra
I'm not Contra, but I'll chime in. When you say "VIX is now down -8.9%" are you referring to the spot VIX, which ended Feb. 23 at 16.49? If so, then HVI is not actually the inverse of that value and you should not expect to see a direct correlation between it and HVI. HVI tracks the inverse of the rolling average of the front two months' VIX futures. You can see those values (and more) here: https://vixcentral.com/ When the futures are sloping up to the right (in contango) HVI will gain in value, even when the spot VIX does not change significantly. Over the last two weeks, the futures curve has been in backwardation (month 1 higher than month 2) which means that HVI declined or stayed even at best. Because HVI tracks the inverse of the two months' values, during the daily re-set, the ETF sponsor sells month 2 and buys month 1. If month 2 is higher than month 1 (contango), they are selling the higher month and buying the lower month and the value of HVI goes up. When the curve is in backwardation, the reverse is true. Since the futures curve is in contango more often than backwardation, this is why long volatility products (HUV, HVU (leveraged), UVXY, VXX) tend to decline in value. Their daily re-set requires them to buy month 2 and sell month 1, i.e. buy the higher, sell the lower. Not a winning proposition except in those relatively infrequent times like the market freak out two weeks ago, when month 1 was briefly much, much higher than month 2.
There are other volatility products, e.g. ZIV, which tracks the inverse of mid-term futures (months 4 to 7 I think) rather than months 1 and 2. As a result, its price movements tend to be more muted.
Take all this only as my simplistic understanding of these products. Much smarter people than me write reams about this stuff all the time.
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