Potential opportunity from interest rate volatility - $IVOL Quadratic Interest Rate Volatility & Inflation Hedge ETF AMEX:IVOL
Quadratic Interest Rate Volatility and Inflation Hedge ETF AMEX:IVOL is starting to look interesting. I wonder can it break above the 10 month smooth moving average this time?
Do you think there is a chance of interest rate volatility and want to profit off it? Do you think there is a chance of widening spreads between 2-year Treasury bond yields and 10-year Treasury bond yields? If so this ETF might perform nicely in coming months.
What is the IVOL ETF product?
Its objective is to protect against inflation whilst providing additional returns from options contracts.
IVOL was launched in May 2019 by Quadratic Capital Management under management of
@nancy__davis, a prior Goldman Sachs trader who is also quiet the looker.
IVOL is an intriguing way to benefit from higher interest rate volatility and widening spreads between 2-year Treasury bond yields and 10-year Treasury bond yields. The ETF should not be confused as an investment to protect against rising interest rates as that is not its objective, it reacts off interest rate volatility and widening 10Y/2Y spreads.
IVOL’s inflation protection component is straightforward with 87% of its assets invested in the Schwab U.S. TIPS ETF $SCHP. IVOL earns interest on the inflation-protected bonds held by SCHP. IVOL also benefits from the principal increase in the Treasury Inflation-Protected Security (TIPS) based on the inflation rate. I might do another brief explainer on this product next if you like?
The remaining 13% component is mainly options orientated and more complicated. In simple terms if interest rate volatility increases or if investors expect larger fluctuations in interest rates, then the value of the options held by IVOL increases. If interest rate volatility falls, then the options held by IVOL will fall in price.
Its a very interesting product given the consistent movement in interest rates over recent months and the spread between the 2Y and 10Y being at an inflection point.
I had to put together a chart for for the IVOL and it appears the RSI has a great history of picking tops and bottoms. It is an interesting and gradually growing ETF product that may be of use in the near term.
I hope the explanation helps but more so, I hope that the chart will help anyone using the IVOL to avoid unnecessary risk.
PUKA
