How to long S&P 500 more effectively

I am bullish on S&P500 in the short run (about 3 to 6 months time frame). Instead of buying the SPY, the S&P500 ETF, in my opinion, a much better counter to buy if you are bullish on the US market is XIV, the VelovityShares Daily Inveserse Short-Term ETN.

  • XIV tracks the inverse of the S&P500 short term volatility index VIX.
  • XIV is constantly buying the front month VIX futures and selling the 2nd month VIX futures.

I like XIV because of the roll yield, which works in favour of XIV trader even if VIX stays flat. I shall attempt to explain why I feel XIV gives me an edge.

The first thing to understand is Contango and Backwardation.

The front part of the above VIX futures curve is in backwardation, where the graph is downward sloping.

The entire VIX futures curve above is in contango, which mean the graph is upward sloping. The important thing is th VIX futures curve is typically in contango. 

At the present time, the VIX futures is in contango. Check here :

XIV price will creep upwards even if the VIX futures stays still – as long the the VIX futures is in contango. This is why I like XIV, because of the roll-over yield.

Let me try to explain what is roll-over yield.

  • As each day passes, the synthetic 30 day VIX future created by XIV becomes a 29 day VIX future
  • Looking at the contango curve, the roll down from 30 day to 29 day becomes negative for VIX futures, as VIX futures is pulled lower.
  • Inversely, as each day passes, XIV is pulled higher, as XIV is the inverse of VIX futures.

I just bought XIV at 109.

  • When S&P500 index drops, volatilty will increase, causing VIX to increase and XIV to drop in price,
  • For me, buying XIV is a more effective way to long S&P500
  • XIV is only available in US exchange.
  • XIV cannot be supercharged with Maybank Kim Eng.

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