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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?

 

 

Image sources:

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7 Comments
  1. Ozzy 1 year ago

    Thx for the article David. I got margin call waiting for me but not sure if I should transfer more liquid in my account or wait this VXX to correct itself. obviously its not moving as it should. now it should be down about 10-20% but instead its oddly up. so, im pretty sure thats why my broker Scottrade not buzzing my phone every minute to fund my account for the margin call. I have emailed Seth couple times and thx to him he was able to respond me.
    we need Seth to do a video about latest craziness.
    thank you.

    • Author
      David Moadel 1 year ago

      Thank you Ozzy, I wouldn’t recommend taking any new positions in vol products today. Personally I’m just watching and waiting until there’s more clarity on these vol products and their future.

      • Ozzy 1 year ago

        oh yeah, even if you try brokerages are not allowing to short any vix products which effects the price of VXX In my opinion and Of Course due to backwardation.

  2. Sunil Narayana 1 year ago

    So true and so stunning to me..Fidelity doesnt have any shares to short vxx, vxz, uvxy … Such a crazy 24hrs or me…finally market gets back 600 pts while all xiv traders lose 80%or all to deal with. Very sad

    • Author
      David Moadel 1 year ago

      Yes indeed Sunil, we’re possibly witnessing a historical event but it’s not going to be remembered fondly by a lot of traders…

  3. Sunil Narayana 1 year ago

    So true….the appetite from retail investors should reduce a lot…or Greed will get them back once dust settles….But there should be some circuit breakers on vix as well. Lot of analysts said even 2008 crashes xiv would have survived..now with no particular big deal its evaporated..:-).. Thank you David & Seth for helping people…

    • Author
      David Moadel 1 year ago

      Thank you Sunil, and perhaps some newer, better ETP’s will result from this… or at least more accountability from the current ones.

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