By Barbara Friedberg
Short selling is a strategy where an investor borrows shares of stock or other asset from a stock broker that is expected to drop in price. Then, after the decline, the investor buys the shares at the lower price and pockets the profit, after expenses.
Typically, it’s a strategy for sophisticated investors. Daniel Lugasi, portfolio manager at VL Capital Management in Winter Park, Florida recommends buying the iPath S&P 500 VIXB ST Futures ETN (VXXB). This fund implements the short selling investing strategy with VIX futures.
This complicated strategy incorporates a futures contract, which is a legal agreement to buy or sell a particular asset at a predetermined price at a specific price in the future. The CBOE Volatility Index (VIX), or fear gauge, is an index that measures the volatility of the market and is the asset upon which the futures contract is drawn.
The fund VXXB, which is a replacement for VXX, lost 30 percent this year. The fund’s performance, which includes data from VXX, averaged nearly 15 percent since its inception at the end of February. Lugasi believes that market conditions favor superior future returns for VXXB.