Are there any "black swan" type ETFs, etc. out there?

[Clubber Lang]

Yes, but will we make money? Let’s say, if we short it at $10 and buy it back when it gets lower and lower, say $1. If it looks too good to be true, it usually is. So, wondering what am I missing.

Borrow fees and the occasional volatility spike which could blow you out (look at March 2020)

 

[SoyUnGanador]

Didn't realize that you are actually looking to hold them in your portfolio instead of just trading them.

There is very little I would venture to say almost no securities that you can actually hold that are completely negatively correlated with the market. Some do get close like gold and USD so maybe you can hold these in your portfolio? There are numerous gold and USD ETF's with prices that you can pull out of any data service for you to model.

Yea, I got that, I was just wondering if there were any ETFs/ETNs/CEFs/etc. that were specifically designed to be "black swan" type instruments.

For example. You might have an ETF that keeps some kind of rolling put options on the [SPY] on average [20%] below strike and [6 months] out. An investor who wanted some black swan protection could hold like [5%] of their account in them perpetually. Or traders could have a field day trading them. That sort of thing.

Sounds like they don't exist though.

 

[KCalhoun]

Great question, hard to find contango-free inverses

 

[TheDawn]

Yea, I got that, I was just wondering if there were any ETFs/ETNs/CEFs/etc. that were specifically designed to be "black swan" type instruments.

For example. You might have an ETF that keeps some kind of rolling put options on the [SPY] on average [20%] below strike and [6 months] out. An investor who wanted some black swan protection could hold like [5%] of their account in them perpetually. Or traders could have a field day trading them. That sort of thing.

Sounds like they don't exist though.

Not that I am aware of. The closest to a "black swan ETF/ETN are the VIX volatility instruments but holding them is extremely expensive due to this phenomenon called Contango. There are institutions that do hold them in their portfolios and they lose hundreds of millions of dollars each year. You can roll continuously some put options to render your portfolio to be what's called delta-neutral but the cost will be just as expensive. The reason is simple: The "black swan" events are events that even though carry extremely large risks only happen once in a blue moon, meaning they have a very small probability of actually happening, the majority of the time the market is fine but when you are holding instruments like VIX volatility instruments or continuously buying put options, you are basically betting that those "black swan" events can happen every day at any time essentially betting against the market but since the market is fine the majority of the time then obviously you will be losing the majority of the time. Just be aware of that.

That's why with a long-term investment portfolio, people usually just diversify their holdings so that when there is a market downturn, they don't lose an equal amount with every single investment in their portfolio. Or don't hold investments long-term but trade them instead and hold some cash or cash-equivalent securities on the side.