Because losses can accumulate ATH, and they had a short product that was about to blowout the whole fund and Credit Suisse would have been left holding the bag for any excess losses.
Proshares was about 40% of the Open Interest in the front 2 futures. Given how the OI is now half of what it was a week ago that number seems right. Additionally, the OCC in all of its wisdom tripled margins overnight on the 6th which I can only imagine contributed to a lot of forced blowups. We might get another episode into next week's expiration but other than that the liquidations are subsiding.
I have no issues with the markets as they are. I think they are so much better, we have great trading platforms, super low commissions and powerful computers. No need to mess with the floor and have to fight traffic, crowds and stand on your feet for hours. You can do all of this from your home office. I do not feel sorry for people who thought they were geniuses in a prolonged bull market and were trading exotic ETNS based on derivatives without the full understanding of potential risks/events. They chose to trade naked and did not hedge. Now they blew out their capital. I am still around and still profitable, during bull and bear markets. I hedge my risk and always focus on risk management first, profits second. Over time the profits add up and your trading capital continues to grow.
The sad part is that this was just a handful of traders there, and a bad risk manager, that let this happen. There are a lot of traders that weren’t involved in that trade that will probably lose their capital. I was lucky enough to dodge that bullet, but a lot of guys are now in the dark as to whether or not they’ll ever see their capital. I guess that’s the risk you take with a prop firm but the way the firm was touting their risk department lately made it seem like they were on top of things but dealing with “G” (please don’t message me for names or details) you got the feeling he was well over his head.
Probably a bit late to this thread, but XIV is not hence it does not hold futures. Credit Suise had a fairly complicated arrangement in which affiliated parties essentially had to hold a short VIX swap in order to create shares of the note. I think this is what ultimately did them in.