Major bear insurance for a XIV position

I have been loading up heavily in XIV during this correction.   I certainly haven’t been bored, watching big gains one day go away the next, but the contango associated with VXX is currently structural—so as long as that situation continues XIV, which is short contango, will be a long term winner.

If this correction turns out to be more than the minor setbacks we’ve seen recently, or the beginning of a bear phase of the market, it might be a while before my XIV positions will be profitable again.   I can console myself with the knowledge that my overall portfolio will not suffer much, but it would be nice to have something to kick in if the market really tanks.

Two ideas:

  • VIX OTM back spread in a one short lower strike call and two long higher strike calls ratio.  Cheap or free if the spread is big enough.  Would pay off well in a full fledged panic
  • Set a VIX threshold that if breached would trigger buying something that tracks the VIX reasonably well—like TVIX.  The goal would be to capture the front end “panic phase” of the correction, and exit once the VIX started its mean reverting relaxation.


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2 thoughts on “Major bear insurance for a XIV position”

  1. >VIX OTM bull spread in a one short to two long ratio.

    Do you mean back spread (sell one low strike call and buy two high strike calls)?

    • Hi Peter,
      Yes, that is what I meant. Thanks for the terminology fix. I’ve changed it in the post.


      — Vance


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