How ’bout those VIX products, huh? For a few brief moments this morning, when XIV, SVXY, and VXX were all halted, I felt like I was in a Twilight Zone episode. SVXY is currently trading again at one-tenth of its former price, and given the fact that it tends to go up over time, I’m temped to buy some right now. But then, do I really want to buy a product with such a precarious existence?
VXX is alive and well, but rather than moving in the same direction as UVXY, it’s utterly uncorrelated: UVXY is bright red while VXX is bright green. Also, SVXY and UVXY are both deep red. XIV is still halted as I write this. Even SPY, the first and most popular ETF, is flopping around wildly like a fish out of water. Has the world gone mad?
I believe that this craziness is a result of a multitude of factors, including but not limited to:
- Some of these ETP’s have never been stress-tested to this extent, or at least haven’t been tested recently.
- The markets haven’t seen any real volatility for such a long time that investors and traders don’t know how to react anymore.
- There’s a lack of communication between the funds that manage these ETP’s and the investing/trading public.
- Social media, of course, isn’t exactly helping the situation.
While experts such as Seth Golden are doing their best to bring sanity to this mess, retail traders are understandably frustrated with the situation (especially if they’ve found themselves on the wrong side of the trade). Meanwhile, Credit Suisse and ProShares have yet to reply to my demands for free psychiatric counseling for XIV and SVXY longs.
As always, the best response in troubling times is a cool head and plenty of available cash. (I found this out recently when I had some car trouble.) Rather than double down on one’s position sizes, perhaps it’s best to watch and wait until the dust settles, while maintaining ample liquidity in one’s account. Even if this situation is indeed a trading opportunity, there’s no need to overleverage one’s positions.
The fact is, all of the best practices for trading still apply. No need to get all cray-cray, k?