The XIV trade was initiated as a way to play falling volatility. Volatility has been near 12 month highs and due to its calculation methodology has the property of tending to revert towards a mean value.
On the surface this is a high probability trade, however due to the structure of the XIV ETN its prone to roll decay when spot VIX is higher than near month and next month VIX futures.
Volatility has remained sufficiently high this week to keep the XIV trade out of the money and in the roll decay zone.
Last night I took the decision to take risk out this trade ahead of the Jackson Hole meeting by closing one of the position for a loss of 90 dollars including costs. The position was initiated on the 19th at 7.39 and closed on the 25th at 7.35. The trade had been in the money 300 or 400 dollars on several occasions during this period however XIV has shown a tendency this week to give back any gains very quickly.
Today I intended to use XIV or its opposite VXX to trade any sharp intraday movements resulting from Jackson Hole. As the minutes of the meeting were announced, the market dropped sharply taking XIV as low as 7.00, I waited for the market to stabilise and bought XIV at 7.09. A little over an hour later I sold XIV for 7.39 for a profit of 340 USD including costs.
5 day price chart for XIV Showing profitable spikes that are given back if not captured. Missed the first caught the last one.
I still have two positions in XIV, both are out of the money. I intend to leave these in play and may add additional positions to take advantage of future intraday opportunities.