We Are All Insurers Now

June 19, 2017

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today's article is by Ben Lavine, chief investment officer of 3D Asset Management based in East Hartford, Connecticut.

 

From The “Seinfeld” Show:

Jerry: I hate anybody who had a pony growing up.

Manya: I had a pony!

Jerry: Well, I didn't mean a pony per se ...

Manya: When I was a little girl in Poland, we all had ponies. My sister had pony, my cousin had pony. So, what's wrong with that?

Jerry: Nothing. Nothing at all. I was just expressing ...

Manya: He was a beautiful pony. And I loved him!

Jerry: Well, I'm sure you did. Who wouldn't love a pony? Who wouldn't love a person who had a pony?

Manya: You! You said so!

—Season 2 Episode 2: The Pony Remark

 

Not too long after we published our May 2017 Market Commentary commenting on “The Death of Volatility,” the Wall Street Journal wrote about the increased popularity of shorting the VIX, or implied volatility priced into S&P options.

With the VIX having dropped to record low levels (Figure 1), shorting the VIX has produced a handsome return so far this year (up 70% based on the ProShares Short VIX Short-Term Futures ETF (SVXY)).

Forget the FANG trade, shorting volatility has become the popular “pony” for institutional and retail traders. With the advent of exchange-trade portfolios (ETPs), now every trader can own a pony, and all the doom-and-gloom naysayers will come across as Jerry in the “Pony Remark” Seinfeld episode.

Figure 1: VIX Drops to Record Low Levels

ETFExplainerXLB

For a larger view, please click on the image above.

 

 

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