Barclays&8217; XXV —the first ETN with nowhere to go?

Updated: Mar 12th, 2017 | |

Update.  Barclays&8217;  responded to the problems noted below with their IVOP ETN.  It has now has a similar situation that XXV has—near its max price and very low leverage.    See this post for more information.


Originally Posted December 11, 2011

Question: What would the value of Barclays&8217; inverse volatility XXV ETN be if Barclays&8217; volatility VXX ETN goes to zero?

Answer $40 / share

As this Volatility Futures and Options post makes clear, Barclay&8217;s XXV doesn&8217;t have much of a future.  Currently at $33,  it can&8217;t go higher than $40,  a 21% increase from where it is now—regardless of how low VXX goes.   After a 50% rise in its first 3 months of existence, this little nova of a fund is doomed to spending the rest of its life in lethargy.

To me XIV, VelocityShares Daily Inverse VIX Short-Term ETN, which tracks the inverse daily returns of VXX, looks like a much better solution if you want to profit from VXX&8217;s contango driven path towards zero.

The graph below shows how XXV has run its course, and how XIV is giving superior performance.

XXV vs XIV, click to enlarge

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Sunday, March 12th, 2017 |
  • J Douglas Wood

    question: if one was to short svxy or xiv as a hedge on if the market crumbles, does con tango/ backwardation / decay help as a tailwind? I&8217;m researching this topic of whether inverse etn/etf&8217;s have this advantage and I&8217;m getting different directions from multiple websites. I would think there is some sort of decay. Case in point: chart 1year vxx vs xiv.

  • vance3h

    Hi J., In a strong market correction the VIX futures tend to go into backwardation, which would indeed provide a tail wind for a short svxy or xiv position. The path sensitivities that these daily percentage funds also would tend to help a short position. Since volatility tends to drop back to average quickly once the panic subsides I don&8217;t think holding a short position on these inverse funds for a long period of time is a good idea. They can recover in a hurry. Unless you want to monitor your position constantly I recommend you look at something like XVZ which has a much kinder long term behavior but still benefits from volatility jumps.

    &8212; Vance