Investors who bet on calm stock markets lose out as volatility returns

09 February, 2018, 07:03 | Author: Luis Fowler
  • ETrade Bans Margin Trading on Volatility ETF as Swings Increase

All told, financial players have created more than $US8 billion ($10 billion) of products tied to one index alone.

Investors dumped stocks after a solid United States jobs report fuelled expectations that the economy's strength would prompt the Federal Reserve to raise interest rates faster than expected.

No one is saying the wild swings of late presage a broad collapse like the one that hit in 2008.

It proved a fitting cap to a hellacious day in markets that saw the Dow Jones Industrial Average absorb its biggest single-day point decline in history, while the VIX spiked 84%, its largest single-day increase of all time.

Now, hats have been blown off by a whirlwind the likes of which Wall Street has never seen. Regulators are not at all inclined to take it, meaning the volatility complex will continue to grow, with the potential for real danger growing along with it.

The VIX moves from minute to minute with no idea where it will go from one moment to the next.

Those funds are inversely linked to the VIX, a gauge of turbulence in the market.

Now that all of these short-volatility naysayers have been proven right, the question becomes: what now?

This is, of course, the way finance has always worked.

As a result, the two popular inverse volatility products VelocityShares Inverse Vix Short-Term ETN XIV and ProShares Short VIX Short-Term Futures ETF SVXY tumbled 92.6% and 83%, respectively, in a single day on Tuesday's trading session. For the banks that made a market in these instruments, there was money to be made. And for more than a year, they couldn't lose.

More news: Amazon To Remove Ads From Prime Exclusive Smartphones With Update

The rise extended Tuesday's gains and followed volatile trading, triggered in part by concern over the prospect of higher interest rates. Barclays veteran Nick Cherney was a close follower when he founded VelocityShares.

It is not the first challenge for investors in a Credit Suisse ETN.

The fallout from the implosion of this vast array of arcane bets mounted quickly on Tuesday.

"With the CBOE SPX Volatility Index.VIX nearly tripling over the last three trading days mark-to-market profit and losses have been significant", said Ihor Dusaniwsky, head of research at S3 Partners. The index was started by the Chicago-based exchange. The bank also said that the XIV ETC activity is considerate of the market volatility of today and there Credit Suisse will not suffer any material impact. More recently, Societe Generale's head of global asset allocation, Alain Bokobza, compared the continued VIX shorting by hedge funds to "dancing on the rim of a volcano".

The trigger of these feedback loops is the constant rebalancing that exchange-traded notes like the XIV and the SVXY require.

Dusaniwsky said this could lead to higher volatility for XIV over the next few days as traders look to buy XIV to cover their short position.

A similar note issued by Nomura was also...

At this point, there's only one thing for sure: people are watching Golden.

You are not only gambling, then, if you hold this security, you are literally just handing all your money to the casino. Well, it is no different this time as Bloomberg says two tiny volatility products, which now only have $135m under management, were largely responsible for the selloff.


  • Four Indian Soldiers Killed in India-controlled Kashmir

    Four Indian Soldiers Killed in India-controlled Kashmir

    Meanwhile, Deputy Commissioner Rajouri, Shahid Iqbal Choudary ordered closure of schools close to the borders. Hostilities between India and Pakistan have increased on the de facto border since last month.
    Natalie Wood Death: 'We're Closer to Understanding What Happened,' Say Investigators

    Natalie Wood Death: 'We're Closer to Understanding What Happened,' Say Investigators

    Corina said. "I think I've been a cop long enough to see ... those appear to be assaultive in nature", Hernandez said. Wood's sister Lana, 71, said she was pleased after Wagner was named a "person of interest" in her "suspicious" death.
    How To Import Custom Wallpapers via USB To PS4

    How To Import Custom Wallpapers via USB To PS4

    There will always be another PS4 update! If parents are feeling generous, they can extend play time from a smartphone or computer. You'll also be able to customize your Tournaments team page with a team logo or other artwork saved off of a USB drive.
  • Salma Hayek: Harvey Weinstein threatened to 'break my kneecaps'

    Salma Hayek: Harvey Weinstein threatened to 'break my kneecaps'

    ET/PT on OWN: Oprah Winfrey Network and will be available via podcast at Oprah's Super Soul Conversations . The Guardian has requested comment from Weinstein. " Little did I know it would become my turn to say no ".
    LA Instances bought to billionaire doctor

    LA Instances bought to billionaire doctor

    Publisher Ross Levinsohn is on unpaid leave after revelations that he was a defendant in two sexual harassment lawsuits elsewhere. The LA Times , like many newspapers, has been downsizing its staff as readers turn away from print to online news platforms.
    4-magnitude quake  strikes Taiwan: At least 2 dead, 144 injured

    4-magnitude quake strikes Taiwan: At least 2 dead, 144 injured

    The tremor struck 22km northeast of Hualien at a depth of 1km at 11:50pm local time, the US Geological Survey said on Tuesday. Taiwanese Premier William Lai said at least 144 were injured. "All the roads were like cracked and coming up", she said.
  • Jews use Holocaust as 'extortion racket,' says House GOP candidate

    Jews use Holocaust as 'extortion racket,' says House GOP candidate

    Jones has run - and lost - for multiple offices both in IL and his native Wisconsin. But both the local and national Republican parties have disavowed him.
    Walt Disney Co (DIS) Shares Bought by Condor Capital Management

    Walt Disney Co (DIS) Shares Bought by Condor Capital Management

    The Altman Z-score depends on five financial ratios that can be calculated from data found on a company's annual 10K report. The Walt Disney Company (NYSE:DIS) current ratio calculated as 0.80, this value is acceptable if it lies in 1.3% to 3%.
    Snapback for Snap on upside revenue surprise

    Snapback for Snap on upside revenue surprise

    Snapchat parent company Snap beat Wall Street expectations for the first time in its fourth quarter as a public company. That re-design, separating friends from brands, was launched in late November, but has yet to roll out to all users.
  • Ford Announces Ranger Raptor and We Want It…Now

    Ford Announces Ranger Raptor and We Want It…Now

    Those bumpers have to be flared so that they can accommodate the larger wheels, which are mounted on long-travel suspension. The front bumper was created to offer desert durability and also includes new LED lights and functional air-curtain ducts.
    Solo: A Star Wars Story EW Cover Revealed, New Pictures

    Solo: A Star Wars Story EW Cover Revealed, New Pictures

    British actress Phoebe Waller-Bridge ( Fleabag ) can be seen, using motion capture to play newcomer L3-37 ('Leet' to her friends). According to EW, her character and Han came up on the streets together, and she is just more adept at fitting in than he is.
    India expected to follow SOP on Maldives, to keep troops ready

    India expected to follow SOP on Maldives, to keep troops ready

    Anticipating a court order to impeach or arrest President Yameen, the Maldivian army has been asked to resist any such attempt. He was also president between 1978 to 2008 when the Maldives, which relies on tourism, became a multi-party democracy.


Bermuda Repeals Same-Sex Marriage Less Than A Year After Legalizing It
Bermuda's decision to become the first nation to legalise and then repeal same-sex marriages has been met with calls to boycott the country.

DNA analysis proves first Britons were black with blue eyes
But Cheddar Man has a few surprises within his very bones that are now being unveiled in a new United Kingdom television special. Cheddar Man's remains had been unearthed 115 years ago in Gough's Cave, located in Somerset's Cheddar Gorge.

BVB: Aubameyang played badly to force Arsenal move
Mkhitaryan registered a hat-trick of assists on his home debut against Everton , while Aubameyang got off the mark with his first goal for the club.

Journalist who exposed Joyce's affair speaks out
She said journalists who missed the story or did not publish it were the same ones now arguing it was not in the public interest. Before working in Politics Vikki Campion worked as a journalist and deputy chief of staff of The Daily Telegraph .

French President, Emmanuel Macron To Visit Nigeria In July, Address National Assembly
He offered the unexpected, symbolic move of recognition in the Constitution, a long-standing demand of Corsican nationalists. But Mr Macron promised more investment and said he was open to transferring more powers to local authorities.

Orlando Magic Upset the Cleveland Cavaliers
Asked if he expects much action around the league between now and then, Wolves coach Tom Thibodeau said, "There could be". Cleveland could certainly mount a comeback and win the game still if they could just play better in the fourth quarter.

Knicks All-Star F Kristaps Porzingis Leaves Game With Apparent Knee Injury
The Knicks entered their game against the Bucks four games out of eighth place in the Eastern Conference , having lost 10 of 14. Porzingis has been one of the NBA's best players this season, earning his first All Star bid this season.

Watch the new extended Solo: A Star Wars Story trailer
With director Ron Howard a safe pair of hands for this franchise, we won't have long to wait for Solo to land in cinemas. There's also glimpses at a box-fresh Millennium Falcon corridor, and Han reaching for his trusty blaster.

US markets on rebound as Europe, Asia stocks tumble
Trading was choppy in the early going Tuesday, likely to be one of the most watched days on the markets in years. Kljunich said numerous factors could contribute to fear in the marketplace, including rising interest rates.

Koeman named new Dutch boss
Koeman was capped 78 times by Holland as a player during an worldwide career which spanned 12 years and saw him win Euro 1988. He succeeds Dick Advocaat , who stepped down after the team's failure to reach this summer's finals in Russian Federation .