Traders seeking convexity with long volatility exposure usually buy VIX calls, but most of them don’t know they can also buy SVIX puts (options on the -1x inverse short-term VIX futures ETF). Both can provide outsized gains during market stress when the VIX surges. However, their structural differences lead to meaningfully different risk/reward profiles.
Detailed Analysis
1. VIX Calls:
Buying VIX calls remains the gold standard for long volatility exposure. They offer Superior liquidity as it’s among the most actively traded options globally, and obviously provide strong performance during sudden market crashes.
The challenge lies in timing the exit. The VIX frequently spikes violently during stress events, then collapses back toward historical norms within days. This rapid mean reversion makes profit-taking difficult: exit too early and you miss the peak; wait too long and gains evaporate.
2. SVIX Puts:
Negative compounding (beta slippage) degrades the ETF's value even when the VIX itself eventually returns to prior levels
This gives SVIX puts a structural edge in scenarios where volatility mean reverts a few days later.
Illustrative case:
July 15, 2024: SVIX $51.30 | VIX 16.51
Sep 16, 2024: SVIX $26.48 | VIX 16.16
The VIX returned to approximately 16, yet SVIX remained nearly 50% below its starting price. This structural lag gives SVIX puts an edge when volatility spikes then mean-reverts, since the underlying ETF cannot fully recover.
The liquidity problem: SVIX options suffer from substantially wider bid-ask spreads, thin volume, and limited open interest. These frictions represent meaningful slippage relative to premium paid, particularly on cheap tail hedges. Scaling positions becomes problematic. For institutional flows or active management, execution costs can eliminate the theoretical compounding advantage. Retail traders placing small, patient limit orders face less impact, but professional implementations typically avoid SVIX options due to these transaction costs.
Which Is Better?
The optimal choice depends on three factors: volatility thesis, time horizon, and implementation constraints.
Choose VIX calls when: You need liquid, executable exposure to volatility spikes, particularly for event-driven scenarios or institutional scale. VIX calls remain the cleaner, more reliable tool for most professional tail-hedging and long-volatility mandates.
Choose SVIX puts when: Your thesis expects a likelihood of quick mean reversion, you’re implementing at retail scale with limit orders, and the structural decay benefit outweighs liquidity costs. This requires patience and acceptance of wider execution slippage.
In most real-world applications, liquidity considerations favor VIX calls. SVIX puts occupy a niche: useful for specific mean-reversion plays at smaller scale, but operationally inferior for liquid, scalable long-volatility exposure.