If you’ve been around for a while, you may know that I am retired, DW about to retire, and we have a nice pile of retirement funds that are literally sitting in cash and cash equivalents. I’ve been pretty consistent with my thoughts that the market is way over valued and makes no sense to me from a valuation standpoint and I cannot bring myself to hit the “buy” button for any stocks or ETF’s at this level.
Then this morning, I was looking at the WSJ Futures and noticed that everything was RED except VIX Futures which is happily painted green. I’ve never invested in VIX, but that got me thinking, Hey '38Packard, if you are so convinced that there is a “Come to Jesus” point in the future of the S&P 500, then why don’t you put your money where your mouth is and invest in something that tracks that line of thinking?
So I started to do some research on VIX and learned some more today! Starting at Fidelity, I read that you cannot invest in VIX as it is only a benchmark. In order to invest in something similar to VIX, there are funds and ETFs that one can invest in, but Fidelity does not recommend that an “average investor” (that would be me) consider these options for a long-term investment.
I guess this was a nice try to think "out of the box’ for me, but I’ll be staying in cash as this option just sounded way too risky for me at this time in my investing career. Has anyone had experience with VIX type investing that they would want to share?
'38Packard ==> not afraid to show off his lack of investing prowess
The problem with “investing in VIX” is that not only do you need to get the directionality right, you also need to get the timing right. And, as always, the market can remain irrational longer than you can remain solvent. This applies to individual investors and to large banks.
(I also kind of suspect that as the fed, likened to a very large ship, slowly changes direction, that volatility will increase for some period of time. However, I can’t predict with any reasonable accuracy when that will happen. See “timing” above.)
It’s not an investable thing, it’s a measurement, but it is something you can bet on. It would be like ‘investing’ in the results of soccer games.
VIX is interesting because there is already an example of one ETN (Barclays) that became disconnected from what it was meant to be tracking suddenly.
Counterparty risk in vix betting is quite real.
“A few weeks ago Barclays abruptly stopped supporting two of its most popular exchange-traded notes, VXX and OIL. The move to suspend share creations linked to the notes, designed to mimic Vix volatility futures and crude oil prices respectively, puzzled many, given how VXX in particular was a popular trading tool with nearly $1bn in assets. It also meant trading went haywire.”
And inverse VIX betting is even more hilarious.
“That all came to a thundering halt on Feb. 5, and both VelocityShares Daily Inverse VIX Short-Term ETN (NYSEMKT: XIV) and ProShares Short VIX Short-Term Futures (NYSEMKT: SVXY) plunged more than 80% in after-hours trading that day. Credit Suisse, which oversees the VelocityShares exchange-traded note, said on Wednesday that Feb. 20 would be the last day of trading for the volatility-tracking product. ProShares took the opposite course, saying that its fund will be open for trading despite extremely heavy losses.”
I still have money in a large value fund that is slightly up for the year and paying decent dividends- veirx also trading as veipx if you buy less than 50k worth. That is a solid recession play for average investors like me.