Inverse VIX Medium Term ETN (ZIV): A Correction in Progress

SUMMARY

First, trading in VIX futures and its inverse the ZIV ETN are not for novices. They pertain to high risk and trading them without thorough knowledge is not advisable. As ZIV analysis had been requested, I've provided a brief introduction.

The VIX is often called the "fear indicator". It measures the degree of "worry/panic" in the stock market. More formerly, VIX is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It uses implied volatility of various S&P500 index options. A Vix value of 30 or higher represents high level of "fear" and less than 20 equates to a high degree of complacency. The Vix term structure is shown below where the front months are May, June, Jul and the mid are the Aug, Sep, Oct. When there is a market crash, there is an event called a backwardation where the front months rise much higher than the mid or the futures price of front months is trading below the expected spot price at contract maturity. Sound confusing? Then stay away from this or use it only as entertainment.

The ZIV is an ETN (Electronically Traded Notes) which is inverse to the VIX. An ETN is NOT the same as an ETF. You MUST know the difference to even think about trading these. In other words,this ETN bets inverse to the movement of the VIX values. The ZIV ETN itself is shorting the midterm VIX futures. These futures are in a strong contango (when future price is higher than the spot price) of about 3% per month since 2011. Because ZIV is shorting these futures, you profit directly from this contango.

Personally, I like the ZIV ETN. The near constant midterm VIX contango can be very profitable. A backtesting of constant holding of ZIV ETN from 2011 provides a 22% to 54.6% annualized return. Again, this is backtesting NOT projection! What is very apparent from the below chart is the broadening pattern of the ZIV where it recently touched the upper trendline and since then, has been correcting. The current wave count shows that of the ABC waves, A and B are likely complete. Given the boradening pattern, price is attracted to the the lower trend line.

The subwaves of the C wave have been included (blue waves) which always move in five waves. The C wave is expected to tag or perhaps temporarily pierce the lower white trendline. The white arrow projects a potential trend reversal for ZIV to again hunt for the upper trendline zone. IF the C wave is about to occur, the MACD should also turn down.

Legal Disclaimer: I am not a financial advisor nor is any content in this article presented as financial advice. The information provided in this blog post and any other posts that I make and any accompanying material is for informational purposes only. It should not be considered financial or investment advice of any kind. One should consult with a financial or investment professional to determine what may be best for your individual needs. Plain English: This is only my opinion, make of it what you wish. What does this mean? It means it's not advice nor recommendation to either buy or sell anything! It's only meant for use as informative or entertainment purposes.

Please consider reviewing these Tutorials on:
Elliott Wave Counting Tutorial #1
Elliott Wave Counting Tutorial #2
Elliott Wave Counting Tutorial #3
Laddering and Buy/Sell Setups.
Laddering Example with EOS
Tutorial on the use of Fibonacci & Elliott Waves
@haejin's Trading Nuggets
Essay: Is Technical Analysis a Quantum Event?

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