Short Volatility ETF Massacre
Hi Steemians,
in 20 years of trading I have never seen something like this.
Due to the big sell off in stocks today and the brutal spike in the VIX, short volatility products like XIV, SVXY got smoked.
Take a look at SVXY during market hours:
And now take a look what is happening after hours:
SVXY hast lost another $54!!!!!
I#m guessing a lot of people got blown out today and also a lot of fund managers are out of a job tomorrow.
Shorting volatility is a beast! It works for a very long time and then in one day they carry you out.
Volatility got compressed for such a long time, eventually it had to explode and I'm not sure, if this move is over, or if it is just the beginning.
We shall find out...
Stephan Haller
Hi @stehaller I have recognized some unusual movements on different markets like you. Unfortunately I am currently not totally involved with all things related to the markets behaviour. Would be nice if you would be able to go into some details and give us some background information.
Well, shorting the /VX future directly or through ETF's like SVXY was a money printing machine for years now, since all the money printing by the central banks kept volatility compressed. Usually /VX is in contango, meaning that the front month future is trading lower than the back month future, so by constantly shorting the front month and then buying it back at a lower price and selling the next month brought in $1,500 on average per month, just because of the different prices between front and back month. Eventually this trade got too crowded and lots of hedge funds too leveraged in the short volatility trade and today lots of short volatility traders blew up.
I was never engaged in futures trading, so my knowledge about this is limited. My experiences are more focused in options trading, where I am able to limit losses independent of market's moves. My time horizon was always much larger than in typical futures trading, 3months to 12months usually. Currently I try to identify some 'uncorrelated' tech stocks in the US market with enough coverage, so that I am able to sell options as needed.
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Seems like BTFD still works.