The dates are obviously wrong, but yeah...simulated based on /VX values at that time...which would be quite different these days, given the size of short vol complex and de-leveraging which would occur...
It's impossible to time the exact bottom - I would rather look at the duration/severity of the vol spike...which would contribute to the cheaper prices in the ETF...for the obvious reasons.
So, the DDs are inevitable - I've experienced -20% and more in these instruments. Shouldn't be a big concern, given their mechanics.
I'm not sure, how reverse split would influence the returns of a position/DD of the instrument.
This is interesting - I believe the same issue was experienced by TVIX a long time ago...would it "correct itself" or how significant could it be?
Paper losses are inevitable, -20% is the minimum to prepare for. Part of the trade is about quick drop in vol from the spike, part of it is about a slow/grinding decrease in overall volatility levels/term structure...What I like about the ETF vs. option spreads - is this ability to consistently short elevated VIX/VX complex over a long period of time..
In terms of the inverted curve...seems to be a common/popular belief, but I've always attributed the VXX/UVXY losses to the overall /VX curve levels vs. VIX. Why does it lose value? It buys second and sells front; in a stable environment 2nd /VX is typically priced 2-3 points above the spot @ settlement, which are lost by the ETPs...I've found it to be useful to do a very simple estimation of prices, at which the ETP acquires 2nd month - which is typically 5% on any given day.
Your chart shows XIV had 90% in 1903, which could not be true.There were no options, nor VIX at that age.
BTW, SVXY never had a reverse split. Don't compare SVXY with VXX, they are opposite entities. What caused VXX reverse split, has caused SVXY to continue going up.
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