Exactly ...I was long SVXY (i exited it before it crashed), but if it had gone to zero it would have been 5% of my account size i.e. would not have killed me.
why would you want to short vol instead of just buying a 3x leveraged etn like tqqq or doing it yourself with futures? it's almost the same returns (this year it outperformed) without the ridiculous drawdowns
Even though spot VIX was low in 2017 and early this year, the carry from shorting VIX futures remained high, because the VIX futures term structure was in steep contango. Often about 10% a month. I did have a few $100K in XIV. I was lucky enough to get out of XIV at about 100 (the liquidation price will be 4.22) on Monday at 3pm, not because I saw what was coming but because I observed that it trading well above the indicative value XIV.IV.
thanks for this! question: "On a more serious note (and this is the second of the two problemsmentioned above), levered and inverse VIX ETPs present (or actually “presented” because it’s to a certain extent past tense now) a sizable rebalance risk" Can anyone explain why levered long volatility funds, like uvxy and tvix, have this problem? if by rebalance risk tbey just mean the risk that every day the fund has to tweak its holdings a bit to get back to 30 day average expiration, i get that. but is there more? thanks.
Typically I'd agree with this 100%, but this isn't one of those cases. Even fully understanding the prospectus, there's a hard wired gap in human perception of risk vs. perception of reward. No amount of disclosure will get past this. Also, making this an ETN gives the illusion of a zero-value point where losses end. They do in absolute terms because CS retains the risk beyond that. But the problem is it looks like the scale goes from 0-115, and risk is perceived as a percentage of that, where in reality there's no reason the underlying assets couldn't get to -100 as a nav value or even lower. So the range of values to calculate risk as a percentage of might better be -100 to + 115. And suddenly the 80% termination event becomes 50%...
It's a fair point, but I then I guess if you want to carry on doing the trade afterwards you are a bit stuck, unless there is an endless supply of people starting these ETNs after each market crash. GAT
The VIX trade had become the very over crowded mugs game. The market will always inflict as much pain as possible to shake out as many traders as possible, but first it has to lure in the last mug. It was clear that market had to shake out both sides of the volatility mugs, there may be another rinse cycle or two to go before this is done. Bear markets are well versed in destroying shorts before making its move just as bull markets destroy longs before taking off.