The blow-up in two inverse-VIX ETNs has vaporized nearly $3.2 billion in investor funds overnight. From Zero Hedge:
- After the close last night two US listed inverse VIX ETFs (XIV and SVXY) gapped down 80% from their 4pm closing price on heavy volume. These are products that rise when the VIX falls intraday, and decline when it increases. The returns are supposed to be 1:1 for those moves. If the VIX rises 5% from open to close, these products should decline 5%.
- The CBOE VIX Index opened today at 19 and closed at 37, a 95% move. You can see the problem here: a 1:1 relationship between the asset values for XIV and SVXY versus the underlying VIX index doesn’t leave much value for tomorrow.
- As of Friday morning, these two funds had combined assets under management of $3.2 billion. They were also among the most heavily traded symbols at Fidelity’s retail website today, with Buys outnumbering Sells by over 2 to 1. In addition, over the last year they were popular with hedge funds as an easy way to short volatility. Their returns in 2017 were +180%. No, that’s not a typo.
Somebody (more likely, many somebodies) is hurting badly.
Expect to hear soon of missed margin calls, hedge fund closures, etc as we start to learn who these bagholders are.