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Why Short VIX Futures Products May Recover Slowly After a Volatility Spike

Article Quant Q&A · Author: trade_the_basis
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Summary

The document asks why SVXY recovered only modestly after a sharp volatility spike and subsequent decline in VIX futures. It gives a historical example: the product fell from roughly $140 to $9 and rebounded to about $12, while VIX futures moved from the 11–14 range up to 35 and then back to 17–18. The question notes that SVXY maintains short exposure across VIX futures with an average weighted maturity of about one month.

The author suspects that backwardation in the futures curve causes daily losses, but questions whether this effect is large enough to explain the limited rebound. No answer, calculation, or analysis is included, so the document does not resolve the issue. It serves as a prompt about how a short volatility futures product’s path and futures exposure can complicate comparisons with the spot volatility decline; the stated figures alone are insufficient to establish the causes of its performance.

Key ideas

  • The document asks why SVXY rebounded modestly after VIX futures fell from their spike.
  • SVXY is described as holding a short position across VIX futures with about one month of weighted maturity.
  • The author points to backwardation as a possible source of ongoing losses but questions its explanatory size.
  • The document provides no answer or evidence resolving the performance question.

Tags

VolatilityFuturesRisk management
Full text
# Why hasn't SVXY recouped more of its lost value as vol has crashed in the past 2 weeks?


# Why hasn't SVXY recouped more of its lost value as vol has crashed in the past 2 weeks?












SVXY fell from around \$140 to \$9. It has since bounced back 25% to around \$12.

Vix futures went from the 11-14 range to 35 and now back to 17-18.

SVXY holds a short position in Vix futures with an average weighted maturity of 1 month. Why didn't SVXY recoup much more of its lost value when vol dropped sharply after the "volpocalypse"?

I get that the curve was (and is) in backwardation and so SVXY loses some money from that daily (but that should be a tiny amount).

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.