A New ETF Seeks to Short Volatility While Dodging Total Wipeout

Exchange-traded products that bet against stock volatility have a history of blowing up. A New York-based firm is pitching a novel solution to the problem.

Simplify Asset Management plans to create a short-volatility ETF that piles on protection to guard investors from the periodic storms that hit the strategy.

The actively managed Volatility Premium exchange-traded fund (ticker SVOL) aims to deliver between 0.25 and 0.5 times the inverse of a gauge tracking Cboe Volatility Index futures, according to a filing with the U.S. Securities and Exchange Commission.

The fund’s unique feature is an options strategy using derivatives on VIX futures and the S&P 500 that should help shield investors from the types of catastrophic losses that can strike volatility sellers.

A New ETF Seeks to Short Volatility While Dodging Total Wipeout

The management fee is expected to be 0.5% per year.

Exchange-traded products betting against stock swings became notorious in February 2018 when extreme positioning amid an equity selloff drove several to implode. The most famous casualty was the VelocityShares Daily Inverse VIX Short-Term ETN, known as XIV.

There are currently only a handful of U.S.-listed products that short volatility, the largest being the ProShares Short VIX Short-Term Futures ETF, or SVXY, with $464 million in assets.

Alongside the VIX product, Simplify plans three more options-based funds linked to inflation, gold and interest rates, according to the filing. The firm recently hired Harley Bassman, who created the implied volatility gauge for U.S. Treasuries known as the MOVE Index, as a managing partner.

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