The Hate on XIV, SVXY is Unfounded

Discussion in 'ETFs' started by mt2rules, Feb 7, 2018.

  1. newwurldmn


    They will lose. There are investor lawsuits all the time. Everytime there is a company merger someone sues the selling company for accepting a price too low and someone sues the acquiring company for paying too much.

    There is a lot more to the coffee story. The coffee was seriously hot - way more than it should have been and the lady suffered 3rd degree burns.'s_Restaurants
    #11     Feb 7, 2018
  2. qxr1011


    u never know

    o yea, and customer was seriously stupid, and law is seriously screwed, and mcdonalds is seriously rich
    #12     Feb 7, 2018
  3. gkishot


    There is no point of creating a product and catering it to people in order to dispose of it after a short while. This is what scammers usually do. What if the product just started trading a day before? It would have disappeared virtually overnight. Shame on all involved. Why is it down today while SVXY is up? Nobody will ever know.
    Last edited: Feb 7, 2018
    #13     Feb 7, 2018
  4. mt2rules


    Do you have a source or any hard evidence that they were the direct cause of the spike? It could have just as easily been a larger hedge fund manipulating the AH similarly to how settlement was manipulated over the past few months. However, in those cases most of the crowd was short and the VIX was manipulated down so there was no "problem". Also, this product going to 0 was only a matter of time and was stated to be the long term expectation in the prospectus. This product would not have survived '08 or possibly even '11 if vol had been as low as it had this past year. Here is an excerpt from the XIV prospectus:

    "As explained in “Risk Factors” in this pricing supplement, because of the way in which the underlying Indices are calculated, the amount payable at maturity or upon redemption or acceleration is likely to be less than the amount of your initial investment in the ETNs, and you are likely to lose part or all of your initial investment. In almost any potential scenario the Closing Indicative Value (as defined below) of your ETNs is likely to be close to zero after 20 years and we do not intend or expect any investor to hold the ETNs from inception to maturity."
    #14     Feb 7, 2018
  5. mt2rules


    Also, I didn't start this thread to be a dick to anyone or rub anyone's losses in their face. I am truly sorry if anyone lost a substantial amount of money in this flash crash. With that being said, they should still brush themselves off, admit they didn't have a clear grasp of the risks of what they were trading, and practice better risk management in the future. This instrument had been great for making large profits if one practiced proper risk management and didn't trade it when the waters were muddy, much like many futures-related products.
    #15     Feb 7, 2018
    MoreLeverage and spread'em like this.
  6. NeoTrader


    That's the lady's problem... She should know the risks and be responsable for her actions...
    There were no complaints when the paper profits were soaring...
    But when shit hits the fan, everybody comes out screaming that it was anyone else's fault but their own.
    These people are funny, they apparently live in a fantasy world where they either win or they don't lose.
    Bunch of crying baby morons...
    #16     Feb 7, 2018
  7. The woman was served coffee going through the drive through. Other settlements had been agreed to by the company in settlement negotiations with other burn victims at other locations in amounts up to $500k. The location in question had received 700+ complaints (documented in the lawsuit) about the heat of their coffee. Their (corporate) marketing team had determined that coffee was most likely to be consumed by commuters immediately after purchase. The corporate quality control manager during testimony at trial stated that foods above 130F constitute a burn hazard (apparently to suggest that any food served cooked would be a burn hazard). Their corporate standards stated coffee must be served at 180-190F. Now the damning linchpin bringing these facts together, the company argued at trial that the coffee was served this hot to consumers because customers wanted it to remain hot until they reached their destination where they would consume it (directly contravening their marketing research disclosed in discovery).

    The award itself was only $640k and included $160k in actual damages. The actual cost of her medical bills were just shy of $200k (the jury reached the $160k by applying comparative negligence, she was 20% negligent, the corp the other 80%). The remaining $480k were punitive damages aimed at punishing the company for knowingly creating a burn hazard and allowing it to continue.
    #17     Feb 7, 2018
    comagnum likes this.
  8. mt2rules


    I'm not quite sure what you are trying to say here. Can you give a little more detail into your thought process? My initial impression is that you are referring to the fact that depending on where the VX futures are at (10, 20, 30... ect.) this dramatically changes what will be a 100% gain (or loss), meaning their range is not the standard way you would think about it. This is made even muddier by the fact that the termination event is directly tied to % daily change in XIV, regardless of when you purchased it. So this means that you could technically purchase XIV when it is down 70%, lose an extra 10% of your investment, and have the fund close. Am I correct? Because that is definitely an issue with this ETN.
    #18     Feb 7, 2018
  9. ajensen


    As a Merrill Edge client I have access to BOAML's equity derivatives research. In a Feb 6 2018 report they (Benjamin Bowler et al) wrote this:

    "A “Minsky Moment” for the VIX
    As noted in our 2018 Outlook, while we did not see short volatility positioning as large
    enough or levered enough to catalyze the next global crisis, we were concerned about
    the risk of an outsized VIX spike in 2018 with little forewarning, potentially amplified by
    a short vol positioning squeeze.
    February 5th delivered exactly such a VIX spike, with the constant maturity VIX 1-month
    future recording its largest spike in history (by a wide margin) relative to the decline in
    US equities (Chart 11). Indeed, the 94.4% rise in the constant maturity VIX 1M future
    was nearly 17.5x as large as the -5.4% drop in e-mini futures, easily the largest stress
    beta recorded (data since Sep-07) and a large enough percentage rise to leave some
    popular short volatility strategies at risk of losing 100% of their capital.
    Particularly striking was the acceleration in the vol spike between 4pm and 4:15pm
    (Chart 12), when the front-month VIX futures contract rose nearly 10 vol points and the
    second-month contract rose nearly 8 vol points. For context, the largest close-to-close
    move ever recorded in the constant maturity VIX 1M future was ~5.5 vol points in Brexit.
    A likely driver of the parabolic vol spike into the close on 5-Feb was the sizeable
    rebalancing needs of levered and inverse VIX products, which by our estimates may have
    bought ~$250mn vega or a record 26% of the day’s volume ($930mn vega) traded in
    the front two VIX futures contracts.

    Despite the pain likely being felt by some in the short vol community, it is important to
    remember that the size of potential losses here is a fraction of the broader active risktaking
    market. For example, even if some popular short volatility strategies lose 100%
    of their capital, this would likely be several orders of magnitude less than the ~$1tn loss
    in S&P 500 market capitalization experienced on 5-Feb.
    Note that with VIX futures now at a significantly higher base level and the short vol
    positioning embedded in “inverse VIX” products significantly de-fanged, an imminent
    repeat of the events of 5-Feb becomes less acute, in our view."

    Barclays (a major player in VIX products) agrees

    'Barclays told clients that the spike in the VIX index was "technical in nature and does not necessarily indicate a true increase in risk perception."

    It said the initial increase was driven by a sell-off in equities, but said the bulk of the move in VIX futures happened after the stock market close, which suggests the demand was driven by demand from VIX managers who buy VIX futures when they rise in order to maintain constant leverage.'
    #19     Feb 7, 2018
    beerntrading and mt2rules like this.
  10. mt2rules


    Thank you for that report! Very interesting information. I had read about that phenomena at one point awhile back but it has obviously gotten worse than I had realized.

    This bit suggests to me, however, that this was all the levered and inverse vix products together. It's an interesting predicament since most of the products are owned by competitors. It seems like they would have to come together to decide on some sort of fund reduction, otherwise people would just move to the competitor. Any other ideas on how this problem could be fixed or avoided?
    #20     Feb 7, 2018