What about trading long XIV instead of shorting VXX?
I run a simple backtest to answer this question:
enter at the open and exit at the close (intraday session) every day since XIV inception, on November 2010, long on XIV and short on VXX to make a comparison between the two etps.
XIV shows a cumulative return of 140% while VXX shows a cumulative return of 198%.
An even stronger difference comes when we compare the overnight sessions(enter at the close and exit at the open) on XIV and VXX.
XIV shows a cumulative return of 42% and VXX shows a cumulative return of 135%.
The answer is that trading VXX definitely results in superior returns. That’s why I always advise to short VXX instead of going long XIV. This is mainly due to the daily etps rebalancing procedure which is an unlinear process.
Anyway for those who can’t short VIX etps here are The Summit system numbers from XIV inception:
CAGR = 48%
compounded drawdown = -20%
Cumulative Equity Curve
This is an acceptable option for those who feel more “comfortable” trading XIV too!