XIV is Zero - Vix Inverse ETN
The VIX more than doubled on Monday.
XIV is an "inverse VIX ETN" sponsored by Credit Suisse. It went from $120 to $5 on Monday. Trading was halted. Lawsuits are forthcoming.
These inverse/leveraged ETFs and ETNs should not be allowed.
Whining on reddit:
February 6th, 2018 6:03pm
February 6th, 2018 6:03pm
> These inverse/leveraged ETFs and ETNs should not be allowed.
Does that follow ? Lots of things go to zero. Doesn’t mean it should be outlawed
February 6th, 2018 7:37pm
A lot of stupid investors incorrectly buy-and-hold them. Those products are designed for short-term investment only.
I can see those products existing as cash-settled options or futures. Making them an ETF/ETN makes it too easy for people who don't know what they're doing to buy them.
If an investment product is misused much more often than it's used correctly, that becomes a problem.
February 6th, 2018 9:11pm
Also, those ETNs are unsecured debt of the issuer. In most cases, an ETN or structured product is much worse performance than buying the underlying future or option. (The issuer typically hedges the ETN with options or futures.)
February 6th, 2018 9:12pm
I mean, explosives are used correctly sometime. That doesn't mean the average joe idiot should have easy access to buying them.
These ETNs are "financial explosives".
February 6th, 2018 9:21pm
"Florida Man Who Raised $100 Million To Short The VIX Likely Returning To Old Job At Target"
So there you go.
February 6th, 2018 9:23pm
> Making them an ETF/ETN makes it too easy for people who don't know what they're doing to buy them.
I don't put much standing in arguments about making things hard for people to do. It's complex, so only rich elites with the time to jump through hoops have it. I'm not a fan.
> If an investment product is misused much more often than it's used correctly, that becomes a problem.
We don't have that data. Even if we did, people have a right to folly. They have a right to make dumb choices.
> Also, those ETNs are unsecured debt of the issuer.
Sure. For that reason you might prefer an ETF, but since we don't *really* think Credit Suisse is going to fail, I'm not too worried. I note that no ETN has failed due to credit problems with the issuer.
> In most cases, an ETN or structured product is much worse performance than buying the underlying future or option. (The issuer typically hedges the ETN with options or futures.)
Sure. Buying milk is more expensive then running a dairy farm. The issuers of this products have an ability to trade futures or options. The buyers of the structured products don't have that ability. If you think the issuers make to much, well, by all means open a bank, get setup to hedge with options and future, and sell structured products for cheap!
February 6th, 2018 9:29pm
..... aaaaaaand it's gone!
February 7th, 2018 1:39am
People like high leverage products because of the profits when things go right. Unfortunately they sometimes have high losses instead and people moan about being mislead and expect to be bailed out.
Governments can legislate to force warnings to be printed or read out on TV ads, they can’t force people to take any notice.
February 7th, 2018 1:47am
The only reason such products trade on stock exchanges is to serve as a vehicle for someone on the other side to fleece the retail investor.
Just like bitcoin futures.
February 7th, 2018 7:21am
I'm referring to the use of futures to manipulate the price of the cash market.
Soon after bitcoin futures were introduced, the price of bitcoin declined from $20k to around $6k, an incredible 70%.
Futures traders who made short bets profited at the expense of the dumb money that has been accumulating bitcoin.
February 7th, 2018 8:25pm
You understand they all the futures short bets were matched by definition by design 100% with futures long bets, right?
Someone else sold.
The gains for the sellers came from the buyers.
I'm not sure what you mean about manipulating the bitcoin market. The price went up. Some of that appeared to be manipulated . Then it went down. Is there a deeper connection to fleecing retail investors beyond the fact that price declined? Can you elucidate the mechanism?
February 7th, 2018 10:21pm
Futures market traders seek to benefit from playing a game of arbitrage, and some Bitcoin analysts suggest that this may leave Bitcoin open for price manipulation. Traders can choose to take “long” or “short” positions and effectively gamble on the price of Bitcoin increasing or decreasing in the future. It’s feared that a considerable amount of contracts that take up a particular position will result in Bitcoin’s actual market price following the futures market and not vice versa. The greatest fear is that institutional investors may choose to short Bitcoin by selling off large quantities of BTC in order to drive down prices and reap the benefits from their futures positions before buying back BTC at depressed prices.
While no one can know for sure if this will happen, it is true that the futures markets are geared towards institutional investors and high net worth individuals. The complex and volatile nature of the market tends to scare off the everyday retail investor.
February 8th, 2018 7:32am
And as we've discussed here before it's easy for someone with a lot of money to drive up the cash price by trading back and forth with himself at successively higher prices, setting up the market for a big fall.
People familiar with the dynamics of Wall St. understand this kind of manipulation well.
February 8th, 2018 7:34am
Because the bitcoin auction volume is so low, it appears that a calculating trader could artificially influence the auction price to capitalize on futures positions. Although CBOE instituted position limits, it seems like the market doesn't have nearly enough liquidity to guard against the market-moving impact of even a mid-size trader.
Back-of-the-envelope calculations (described below) suggest that as little as a million dollars could be used to shore up futures positions and influence the auction market. But, even if manipulation appears possible, legal safeguards might dissuade malicious activity.
February 8th, 2018 7:36am
"legal safeguards might dissuade malicious activity. " HAHAHAHAHA.... As legal safeguards have worked so well in the past to prevent market manipulation. Oh man, that's good.
February 8th, 2018 7:37am
So, set up a few accounts and bid successively higher and higher prices in the auction market, then once the futures are introduced, take a large short position and start unloading bitcoin to drive the price down, which causes people to start selling, and you know the rest of the story.
February 8th, 2018 7:40am
Or, margin trader who gambled:
>Basically they had ~$50,000 invested in XIV then took out a loan of ~$20,000 and threw that into XIV as well. Well over the past day XIV has lost 92% of its value, so that total $70,000 investment OP had in XIV has just been reduced to being worth about $5,600. They still have that $20,000 loan outstanding and now the lender is pissed at them and says no more loan for naughty thotties and wants it back, so they liquidated the remainder of OP's assets to get back some of their money. But it's not enough, OP is still down $12k and needs to pay the brokerage back.
February 8th, 2018 9:00pm