Home > Markets > ETFs > XIV and SVXY: possible liquidation by issuer

XIV and SVXY: possible liquidation by issuer

  1. https://finance.yahoo.com/quotes/xiv,vxx,^vix/view/v1
    $VIX was up 115.60% to 37.32

    "This Is It": Traders Panic As XIV Disintegrates After The Close"

    which links to this article from July 2017
    "The "Wipeout Scenario": 250% Losses If VIX Spikes To 20"

    https://twitter dot com/search?f=tweets&vertical=default&q=%24xiv%20liquidation

    https://twitter dot com/firehorsecaper/status/960637606441734144
    "$XIV Apparent liquidation concerns. Prospectus states liquidation event if #VIV prints >100 1-day basis. $SVXY also with same AH action. "

    https://twitter dot com/polan13/status/960637123878506496
    I think we just saw liquidation events on multiple $VIX products. By liquidation event I think they might not exist tomorrow. If you want to learn more about this follow @jessefelder

  2. Judging by the number of VIX (XIV, SVXY...) threads on here today (6, I think this one is), I suspect there's a lot of ETers hurtin' this afternoon.
  3. People holding XIV, SVXY, or short UVXY through -10% Backwardation were out of there minds. You would have gotten blown out in both 2011 and 2008 doing that.
  4. VIX curve right after the close looked like the old curve charts from 08-09 (vixcentral.com). My TDA charts of some of the months, /VXM8 for example, basically look like someone was forced to buy in on the ask into the close, unpleasant!
  5. Just looked at SVXY afterhours, in f'ing sane!
  6. I still have svxy in hand, what should I do?
  7. Credit Suisse (xiv issuer) also down a lot in afterhours,,,don't want to sound batshit crazy but when's the last time someone said contagion?
  8. Everything has been insane today ATH--whole percentages below the day low in a lot of cases. Tomorrow it's gonna hit the fan.

    I used that word today in a chat with other traders. This one looks real.

    Your broker might moot that point and decide for you.
  9. Are xiv and svxy done???

  10. XIV can't go down too much further...there's a hard floor in its way.

    It does beg the question though. Who is left holding the bag if the short obligations actually do give the ETP a less than 0 value--for the fund itself?
  11. My thoughts to you friend, I can't recommend anything reasonable.
  12. Sell it for whatever u can get....not sure if after hrs still going.
  13. Absolutely insane move in the volatility ETF's today, thuis is what happens when everyone gets complacent.

  14. Should be interesting to see where it opens tomorrow...it's already down 80% after hours...never seen anything like that before....I read that the xiv was a very highly traded vehicle....I'm extremely tempted to buy but will hold out until tomorrow...if anything shorting volatility is going to be extremely profitable in the next few days!!
  15. The price of svxy is around 20usd, does svxy worth that price? Should I sell it out as early as possible?

  16. Its tempting to short it but with the way algos work if the market gaps up 50 points tomorrow and all the other volatility instruments crater, XIV could open at 60 just cause of the arb that so many algos run, not worth the risk even though its most likely going to zero.
  17. Termination event when down 80%. That's it for those two etf's.

    Will it take other things down with it? We'll see.
  18. Possibly CS:

    CS down 5% after hours

  19. It depends...it's really something you need to decide. I'm not clear in the inner workings of it, but it looks like you've already absorbed 80% of the downside, and it's possible this is panic that will not manifest during RTH...I'd have a clearer answer for you if I understood the product better.
  20. Possible XIV termination events
    Updated: Oct 15th, 2017 | Vance Harwood | @6_Figure_Invest
    In the prospectuses for XIV, there are some disconcerting discussions about termination events. For XIV the termination event is triggered if the daily percentage drop exceeds 80%. I did some digging into these events to try and figure out how likely they are to occur. If you’d like to read a more general discussion about this ETN you can read this post.

    First of all XIV provisions for termination/acceleration relate to VIX futures not the CBOE’s VIX index. The VIX relates to the instantaneous implied volatility of the S&P 500—which is a different thing. Volatility futures have contracts with different expiration dates. Typically the further out their expiration dates (e.g., 6 months from now), the slower they react to the day-to-day moves of the market. XIV is based on the two futures contracts that are closest to expiration, the administrators for these funds adjust their positions in these contracts daily to achieve an effective average time till expiration of 30 days.

    VXX does the same thing, except it is trying to be long volatility, not short/daily inverse % of volatility. When trying to understand XIV you can view them as being a short position in VXX , or tracking the opposite daily percentage move of VXX (XIV).

    VXX is not as volatile as the VIX index. On a day with sharp market moves VXX will typically move about half the percentage move of what VIX does. VXX can still make big moves however—one day during the May 2010 Flash Crash, it jumped almost 25%—the VIX on that day jumped 46%.

    Now we can talk about termination / acceleration. I think it is reasonable to assume that the goals of the ETN providers in including these measures are to:

    • Prevent the ETN value from going negative (they specify in these prospectuses that the value will be greater than or equal to zero)
    • Protect the provider from undue market risk in hedging these products during volatile times
    With XIV termination (or “acceleration” in marketing speak) relates to daily percentage moves. If VXX jumped more than 100% in a day, then if VelocityShares didn’t terminate XIV its notational value could go below zero. They avoid this particular unhappy situation by terminating the fund if the daily move of VXX is 80% or more—although losing 80% in one day would still be plenty traumatic.

    Just to be clear, this fund isn’t tied directly to VXX, but rather the underlying futures contracts, but I believe VXX is a good proxy for the situation.

    The termination risk for XIV appears to be limited to market crashes worse than the Flash crash. Two examples that come to mind are the 2009 crash and the October 1987 crash. VXX didn’t exist for either of these. I have analyzed VIX data (or simulated data) since 1992—there were 20 days with VIX jumping over 30% (previous day close to intraday high) during that period. The highest percentage jump over that period was 70.5% on February 27, 2007. There were three days with VIX jumps over 30% in the 2008/2009 crash, and during the Flash Crash.

    If VXX had existed during this time span and held to its typical behavior of 50% of VIX’s move it looks like the XIV termination event would not have occurred, but obviously it would have taken heavy losses on those days.

    If you are investing significant amounts of money in these products it looks prudent to at least hold some OTM VIX or VXX calls. These would provide some insurance against these infrequent, but dramatic events.

    Thanks to Steve, who commented on the first version of this post pointing out that the ETN providers were probably not looking out for the investor, but rather for their own hides in incorporating these termination events.


  21. Yeah, that's what I wondered. We may well get an answer tomorrow.

    I wonder about the legality of all that though. Like does it breach their fiduciary duty to cover products and go against their prospectus? Does that duty end when your assets they manage are worthless?

    Doubtless the shareholder-robbing attorneys will be after them for this one.
  22. Credit Suisse down -6.6% afterhours. Wonder how exposed they are to these products?
  23. Like you had a premonition of the question I was asking. Thanks! :)

  24. Buy more and average down............. :sneaky:
  25. VelocityShares web site for XIV

    14,993,883 ETNs outstanding

    "Closing indicative value" listed as $4.22, which matches the figures seen by traders on Bloomberg and IBKR.


    SVXY Proshares page still has the February 2 values:

    but it does list its holdings as at February 2:

    CBOE VIX FUTURE 02/14/2018 (UXG8) (43,518.00)
    CBOE VIX FUTURE 03/21/2018 (UXH8) (81,146.00)

    Net assets $1,893,132,269.00


    VMIN Volmaxx page has "TBD"

    650,000 ETNs outstanding

  26. When does after hours trading close?

  27. So that means they open at zero tomorrow....why not short and get that simple easy return???
  28. No, it means they rebalance with the liquidated proceeded...at least as best I understand.

  29. So the fund shuts down for good?
    I was reading that xiv was a very big money maker for velocity shares...
  30. I took on a small long (call) position on SVXY today, but hedged it with shorter-expiry puts at 2X the delta when it seemed like things were going south. In the event of termination, the calls are obviously worthless. The puts should be at max value . . . but I have a feeling I'm gonna get screwed. Am I?

    It's not a big number in terms of my total investment, so I could handle it all just vanishing, but it would be a pretty nice gain if the puts paid out at $0 SVXY. I just have this feeling they won't.
  31. Can’t you just buy some SVXY common right now (last I saw an hour ago it was trading mid teens) and lock in some solid gains?
  32. Honestly, I don't know. My knowledge of this dates to 6:51 when Arnie posted the answer to the questions I asked moments earlier. But my take on it was that they would rebalance contracts as usual after stopping out.

    I really would appreciate someone with direct knowledge of this chiming in though.
  33. Not sure I understand. Why would I want to take on a long position on something that might be worthless tomorrow? I'm concerned they will abdicate their responsibility on the puts, which by all means FEELS wrong, as they clearly knew the $ risk at $0 SVXY, but somehow the little guy is always the one taking it in the shorts.
  34. Who is "they" ?

    The OCC is responsible for determining what happens when a stock is delisted from a major exchange and/or cancelled. In almost all situations where a stock is cancelled completely, owners of puts can exercise their puts and deliver nothing to the put seller.

    But if you wish, you can buy SVXY at $15.00 and then you know for sure that you can deliver it to the put seller at expiration.

  35. Thanks. It's that "in almost all situations" thing that makes me wary. I expect it will play out the way you say, though.
  36. Looks like it's showing a $4.88 nav on their site....
  37. As of sept 17, cs owned 5 million shares of xiv and they've lost 500 million dollars as a result. They may also have further exposure being the issuer liquidating this security as they still have to buy in futures to liquidate. (as i understand it)

    And this may explain the late day selloff in the broad mkt as it became clear this kind of thing was going to happen and would effect a number of different strategies funds employ.
  38. Well, read up on this some. It looks like they will just do an accelerated maturity (more clearly defined in prospectus). Applicable language is on pages PS-44 and PS-45 and specifically subparagraph (d). It's definitely uncharted territory here, so let the trailblazers blaze.

    It sounds like you'll receive the redemption for early maturity based on its value.

    But it's worth noting they have the "option, but not the obligation" to accelerate maturity. Given that this very well may be termination panic driving prices lower, and not an actual underlying shift in the market (though it's conceivable if they tried to offload the futures it would hit the underlying), they may elect not to mature early and allow for a possible recovery during RTH tomorrow.

    Beyond all that, I'm sure it breaks down elsewhere in the prospectus exactly how payment on maturity is to be handled--but that's above my pay grade and interest level being that I have no dogs in this fight. I hope I've at least offered a jumping off point to figuring out how this all works.

    Prospectus: http://app.velocitysharesetns.com/f...Final_Pricing_Supplement_AR46_long-form_1.PDF
  39. I wouldnt buy the nav is like 4 dollars
  40. I wanna write this as a word of warning to people, i damn near blew out today with these moves on the volatility instrument, it started as something where i was going to be willing to take 10k of risk on the VXX short, cause i thought 2700 would hold up on the ES, i cant remember where i started probably like high 39's, 39.80, or something, then i added, and i added, and i added, then when the ES puked, suddenly all these volatility ETF's locked up and i lost the ability to cancel orders and send new onees, Got triple filled, and then I was short 22k shares of VXX at one point thinking i was going to blow out i was trying to punch out but my software wouldnt take those orders either, and thankfully it came all the way back down and i finished down a thousand bucks, but if it had went parabolic to 60 at that point which is what it did afterhours, i would have been on the breadlines looking for work, it was very close to a problem i couldnt fix, point is dont trade size when volatility gets that insane, especially when it appears to be a glitch in the matrix.
  41. I shorted some XIV below $17 in the after hours.

    For me the $4.22 "closing indicative value" on the VelocityShares web site
    is more important than the possibility of liquidation / termination.

    It appears that VelocityShares have covered a lot of their short VIX position, and in doing so, the net assets has declined substantially.

    Assuming the $4.22 value is correct, then I've shorted XIV at more than 3 times the value of the underlying. A liquidation / termination would just be an added bonus.

  42. I certainly hope not! It has been my bread-and-butter for 2 years.
  43. Sorry to read your story. I trade volatility, but at any time VIX hits 25, I am on the sidelines.

    Cash is a position.
  44. And a lot of those who TP'ed too early (myself included) cursing themselves for missing on the massive profit that one dreams about all the time. When those massive profit opps finally present themselves there, we are not there. F***!!!!!!!!!!!!!!

  45. I used to trade xiv like crazy back in the day.... haven't in a long time but tomorrow I might see where it goes for a trade. ..
  46. I'm thinking VXX puts.

  47. I'm shorting vxx above 60 tomorrow.....this will drop a quick 50% once there is a relief rally....
  48. What's the best (free) site for tracking legitimate pricing after hours? I'm sick of yahoo!.
  49. Based on a beta of -0.46 to the VIX Index, the VIX would have to increase 217.4% in a single trading day for XIV and SVXY to fall to $0. For XIV to fall 80%, the VIX would have to increase by 173.9% in a single trading day. These figures are hypothetical and based on the historical betas of XIV and SVXY.

  50. "Volatility Jump Has Traders Asking About VIX Note Poison Pill"

  51. What happens to long & short option holders of these products if they are 'terminated'?

    What value do you base on in terms of determining P&L or assignment risk? Just assume they are $0?
  52. It's likely to be the same as any other stock that is cancelled. Calls are not exercised. Puts are exercised and the put holder delivers zero/nothing to the put seller.

  53. The value of the strike of the put still matters though right?

    If someone sold say a naked $50 put on the XIV, he gets ~$5K loss?

    If someone sold a short $50 long $30 put credit spread, then he loses ~$2K?

    Also, is it still autoassignment of options if the underlying delists? Assuming none of those stocks are going to trade again starting today, that means options market closed too and you're locked in right away?
  54. Amazing....you can't short VXX .....simply Fu©king amazing.....

    I tried in 2 sepersep accounts...

    That is literally free money after the vix collapses!!!!
  55. For the specifics you would need to keep an eye on the OCC web site to find out about exercise/assignment, and any autoassignment that may or may not occur.
  56. Would suck if a guy sold a put spread, and the options don't trade anymore so maybe no autoassignment as there is no value to the underlying anymore (not zero), but the other guy who holds the long put assigns on him and he loses the full amount versus the hedged amount because he didn't exercise his long put side thinking it was automatic.
  57. Yes, it's probably safer to manually exercise options at expiry rather than rely upon autoexpiry

  58. Afaik, theres no termination for svxy etc.
  59. VXX puts. A safer play, anyway.
    The last trading day for $XIV is expected to be Feb. 20, 2018. CS is not issuing new units of $XIV

    https://twitter dot com/t3live/status/960880833950289921

    https://www.credit-suisse dot com/pwp/cc/doc/credit_suisse_age_event_acceleration_xiv_etns.pdf

  61. If this rally holds (yes it's early, just the open), did Credit Suisse just do the ultimate bottom tick stop out? yikes.
  62. Maybe, but I don't think CS really cares. Outside of the management fee what did they lose ? Their stake (which I believe was the original from the creation of the product) should be hedged.

    Obviously, shareholders of the product have a different view. But even so, isn't it a daily reset ? So even with vol dropping back down the shareholder has little capital left to work with.

    It's a tough gig to be a XIV investor, as it clearly would suggest that CS "hedging" pushed their own instrument into liquidation.
  64. gotta look out for #1.
  65. SVXY is trading again. I was getting worried -- I bought some puts as a hedge late in the day yesterday and when they halted trading I was just sure they were going to liquidate and tell me to pound sand. Fortunately that didn't happen. Bought for $12 and sold for just under $67. Saved my ass.
  66. Wouldn't CS be selling vol as a hedge to their XIV?
  67. nice trade.
  68. I think they have to buy it to be able to short it out (?). someone else can jump in here....
  69. Thanks. By "saved my ass" what I really mean is "I shouldn't have started legging into long-dated SVXY calls yesterday but I did and just got a really bad feeling towards the end of the day, so I delta hedged with weekly puts".

    Essentially, I was in a long straddle with different expiries. When they halted I figured liquidation would wipe out both sides, even though I saw claims that the OCC would force them to pay out on long puts.
  70. Nah, let's look at their exposure apart from the bit which they retain (32%, I think; which I guess doesn't need to be hedged, as it's not really live).

    They sell XIV to the end investor. End investor ends up short vol, whereas CS ends up long and then they hedge it by selling vol. So at a given point in time, their portfolio is short XIV and short VIX (in some way). When VIX moves a little bit higher, they are indifferent, as they're hedged. However, if VIX goes up bigly, the probability of XIV disappearing into thin air goes up, which means that, on aggregate, they get shorter and shorter vol as they get closer to the barrier. When XIV disappears, they're just left with their short VIX hedge.

    EDIT: Obviously, this is just my understanding and I could be (and often am) wrong.
  71. that was my understanding as well. So the XIV is now effectively gone, but they are still short the VIX hedge which they have to buy back. Given that they are effectively running the table they might be profiting bigly by this.
  72. Yeah, although I guess it depends on how they hedge exactly... Given the nature of this thing, I imagine they were probably pushing it, as VIX was going higher. It’s proper wrong-way risk for the XIV longs.
  73. I think I got it. As the vol is going up and the XIV is losing value, Barclay's notional to hedge will be dropping as well. So while Barclays is short vol against their XIV they might actually be buying vol to cover the drop in notional and that would push the XIV to zero.
  74. Yeah, it's not that they're hedging XIV itself... They're, effectively, hedging their hedge, which will look increasingly nekkid as VIX goes up and XIV gets closer to the barrier. It's a pretty typical thing that happens with all the 1st generation exo stuff in FX. Just bigly short gamma.
  75. https://finance.yahoo.com/news/amid-volatility-surge-credit-suisse-152752903.html

    I might be late, haven't read through this post but looks like they are terminating XIV. Anybody read through the prospectus and care to share how that will work? It says the 20th, so I assume they will just settle it up on that date based on the value at that time? Last I checked it was trading at a premium to its indicative value
  76. https://www.credit-suisse.com/corpo...ounces-event-acceleration-xiv-etn-201802.html
  77. So the best move for a huge multi billion dollar hedge fund is to simultaneously dump their broad market stocks during technical weakness opportunities, buy VIX calls, buy puts on XIV, and short CS. All of this creates a self fulfilling prophecy of terminating the XIV.

    Somebody must have known the mechanics of this unwind and how it would have played out the way it did. Is it possible somebody engineered this whole thing to fail when the opportunity presented itself? Seems so simple right? Anytime VIX goes up 100% this thing is toast as written in the prospectus. Now the question is how do you make the VIX go up 100%? Who wants to launch another one of these ETN? How do you engineer the next 100% VIX move while you short the POS to zero? Some quants out there must be figuring these things out.
  78. While I agree with your hypo....there is this concept of regulation where an investment bank (CS) is not supposed to be underwriting product designed to fail or be so easily manipulated.

    Not to say it dosen't happen.

    Btw...not a fan of more regulation.
  79. I find it interesting that the media attention (even before the termination announcement by XIV) has been largely based around XIV, with less attention given to SVXY. Although SVXY is not terminating, SVXY "investors" have lost over 80% since Friday.

    At some point in the future, when the VIX futures rise by a large amount, SVXY will likely experience another 80plus percent loss in a day.

  80. Right...and that is a daily reset , correct ?
  81. For most intents and purposes, SVXY has the same characteristics as XIV.

    As rough "proof" of this, have a look at a 6-month or longer chart of SVXY:XIV.
    Prior to this week, it was a very flat line at about 0.95.

  82. Ophir Gottlieb wrote an interesting article about what really happened to XIV.

    "It's a reminder that the real danger to a portfolio is not a bear market -- we recover from those quite nicely as a nation -- it's the delirium that happens when a bull market gets totally out of control and margin is used excessively in a spurt of just a few days. And by margin, we don't mean normal, everyday investors, we mean the institutions -- even the ones we entrust to be custodians of our investments.

    So that's it. XIV likely would have done just fine after this moment in time in the market, will not be given that opportunity to recover. It has been blown out on the heels of yet another Wall Street debacle, which no one seems to even understand, yet."

    The problem, as usual, is not the instrument - it's how you use it. Leverage is what is killing accounts.
    To learn from history: