Published: Fri, February 09, 2018
Finance | By Cynthia Curry

Vague Security Linked to Stock Volatility Plunges 80 percent (VIX)

Vague Security Linked to Stock Volatility Plunges 80 percent (VIX)

The bank is triggering this liquidation because the product during these last three volatile days could not keep up with the scenario it was supposed to track: a calm market.

For the Dow, the fall at one point of almost 1,600 points was the biggest intraday point loss in Wall Street history. - Following an 85% decline in the value of the VelocityShares Daily Inverse VIX Short-Term exchange-traded note, the XIV ETN is all the rage.

Kristina Hooper, chief global market strategist at Invesco, said there were "a lot of forces at work", but the short volatility trade blowing up "certainly aggravated it".

Potential losses will likely come down to how Wall Street managed their exposure to the products, which they typically hedge in the futures market.

NYSE Arca is adjusting the re-opening auction reference price for SVXY (ProShares Short VIX Short-Term Futures ETF) from the prior day's official closing price to the Intraday Indicative Value (as of 11:00am) of $11.4111.

The VelocityShares note was created to bet against wild gyrations in the market, measured by the VIX, Wall Street's so-called "fear gauge". A move above 70 is widely considered to show the stock as overbought, and a move below 30 would indicate that the stock may be oversold.

"People know that ETNs have to rebalance, and which way they have to go and about how much they have to buy", Verastegui said.

The VIX spiked past 46 during a whipsaw trading day Tuesday before closing around 37.

It was a theory echoed by Barclays Plc analysts in a research note published after Monday's sharp spike in the VIX. Despite the small size of the products, traders closely monitor the products' behavior, and that is said to have caused the panic, as traders predicted how the funds would rebalance and front ran that rebalancing. On the other hand, a reading of -100 would imply that the stock is oversold and possibly set for a rally.

MRA surmises that the inverse-VIX implosion was a major contributor to a considerable S&P futures selloff after the United States market close.

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In other words, never put money into a volatility product.

Taking a deeper look into the technical levels of Benakat Integra Tbk (BIPI.JK), we can see that the Williams Percent Range or 14 day Williams %R now sits at -91.30.

"What we have to remember is stock markets have had a very smooth ride upwards and we've not had a fall of more than 3% for 15 months".

To be sure, the seeds for a pull-back had been sown well ahead of 3 p.m. on Monday.

Credit Suisse issues this security and it is supposed to provide with the opposite return of the Cboe Volatility which is the popular turbulence gauge used in the market.

But even as 2018 kicked off with soaring stocks and subdued volatility, signs of complacency in short-vol land had cropped up.

The VIX instruments derive their returns based on futures contracts, which also explains why their meltdown occurred at the end of futures trading.

Needle moving action has been spotted in VIX Mid-Term Futures ETN Ipath (VXZ) as shares are moving today on volatility 4.17% or $0.88 from the open.

Assuming the data are correct, SVXY either remains popular with traders, its slide encouraged dip buying or both. What does this all mean and why should you avoid these ETFs?

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