So I read yesterday's newsletter by Matt Levine
https://www.bloomberg.com/view/articles/2018-02-0…
The short volatility trade finally blew up. Some poor retails guys on Reddit caught holding the ball are wondering whether they should literally kill themselves. Doomsayer Christopher Cole from Artemis Capital is proven right, and is taking a celebratory lap around twitter.
https://twitter.com/artemisvol?lang=en
I have a couple questions for you all. How afraid are you right now, and do you think the bull market is nearing its end? Also, it looked to me that there might have been a window of time yesterday around 3pm where there might've been an opportunity to short XIV before it blew up. It's actually pretty surprising to me that an index that must rebalance each day, tied to the opposite performance of the VIX, was only down ~20% while the VIX was up nearly 90%. Can someone explain to me why only after hours trading corrected this? Is there a way to check to see if there was enough liquidity to borrow and short XIV before close on Monday 2/5/2018?
No concerns abt the mkt here... Steady as she blows, IMHO.
It was very hard to know what was actually happening to XIV yesterday. Ultimately, I suppose that there was a chance that CS wasn't going to liquidate, which is probably a function of the VIX settlement. Still, I think liquidity evaporated very quickly and you wouldn't have been able to short it.
what about just trading the VX futures?
Futures were OK, AFAIK...
I really thought people knew better than shorting vol !
The returns on a systematic vol selling strategy since the crisis have been absolutely spectacular. Even people who might have initially known better were sucked in.
Plus ca change, and all that...
Yes I agree. Its easier for me to say in hindsight but at the time it must have looked to be a killer investment.
Found this 3 months old article that discusses this kind of event in case any one is interested: https://sixfigureinvesting.com/2011/06/ivo-and-xiv-termination-events/
On another note, Victor Neiderhoffer blew up similarly in 1997 when he was busy selling naked put options on the S&P 500. Though not similar, history does tend to rhyme it seems.
Also this was kind of like the black swan event NNT keeps talking about.
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Well I do not understand something. Couldn't they just close their positions when it went down by 5% or something? Or is it that in such a case there are no buyers so people have to go all the way down?
XIV and SVXY maintain 30 day expiration exposures. What most people look at and quote is spot vix. 2nd month and 3rd month vix is very different (but directionally highly correlated).
http://www.proshares.com/funds/svxy_daily_holdings.html This shorted february and march futures.
http://www.cboe.com/delayedquote/advanced-charts?ticker=VIX%2fH8 http://www.cboe.com/delayedquote/advanced-charts?ticker=VIX%2fG8
And word on the street is that CS was the whale that spiked february and march futures into that level because they had to hedge their massive as fuck exposure. If $4 bn is short those futures, then there would be $4 bn worth of buying pressure to hedge. And these futures spiked after hours, which is why svxy and xiv went bust. And yes, what CS was legal. It's in the prospectus.
Made so much fuckin money off shorting volatility. Why would people not sell XIV when volatility was clearly ticking up like a meth head after he sells a stolen watch to a pawn shop
Annnnnnnnd it's gone
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