There is a whole risk spectrum to short VIX which a lot of these twitter idiots either ignore or absolutely refuse to understand which I've touched on before. Short VIX isn't 100% of buying power in selling naked VIX calls, although I suppose that is the purest form to do. (I'm not that crazy even though I see other twitter guys going all in portfolio margin) The point is short VIX is exposure to the mechanics of VX futures converging to spot, and you can layer that exposure into your portfolio at 2 levels: product/strategy choice and % allocation.
At the strategy choice level, I have dabbled across a few things including long XIV, short SVXY puts, SVXY verticals, short VXX call verticals, and now I'm touching on buying UVXY put spreads to get that extra decay.
The main reason behind this switch is tweaking the full portfolio from:
-Short VIX exposure (~40-50%) plus cash to buy dips if the short VIX positions are tested,
-Higher yield short VIX exposure (~15%) plus uncorrelated positive premium positions (~50%) plus cash to buy dips. Higher yield being closer to the money, going from SVXY to UVXY shorts. We are trying to get a similar monthly premium with a lower max drawdown for the edge cases, making the cash position more effective. With the way VIX products decay, you are either up or REALLY down, so unlike many products, it might make more sense to be closer to the money so the premium from most of the time better compensate the huge spikes down.
Here is a correlation sample of the main products I'm working with, going back ~8 years (to GDXJ inception):
Even if you are bearish on bonds given the macro Yellen show (which I semi agree with), this is still a short VIX portfolio 1st, so I am fine with having these uncorrelated positions to XIV because that is my main macro assumption.
I've been doing ATM TLT covered calls and very close ATM GDXJ diagonal/poor mans covered calls to create some kind of hybrid mega dividend. I touched on the psychology of the ATM covered call in a previous article in that I'm trying to get the best downside breakeven and in this setup I'm trying to have the premium be the primary driver so that annual gain is the most easily modeled .
Is there a point here? Basically short VIX can be the core of a full portfolio which is complemented by a big cash position and uncorrelated underlyings to buffer the swings a bit. (Remember we are trying to create that poker cash game slow grind up)
I don't know why I even bother because we'll never hear a reasonable response from these people so I guess this is more for the one person out there that wants to join the discussion on tweaking short VIX portfolios to reduce the insane swings, or maybe someone that is trying to add a little short vol to their current portfolio.