Nice returns! No question the VIX bear strategy has worked fabulously over the last few years. Just hard to see VIX going much lower especially with vast amounts money being short vix without even knowing it!
Feedback Loops: Short VIX ETPs growing – their issuers’ short covering could exacerbate a severe selloff scenario
Inflows and performance to short VIX ETPs raise their importance as a feedback loop. There is now over $100mm vega in short VIX ETPs – the most since the immediate aftermath of the Brexit vote. There are two ways in which short VIX ETPs can be a feedback loop, exacerbating vol-of-vol: daily rebalancing of the note and the potential for the products to be redeemed in a very severe scenario. The combination of large short VIX ETPs and also below-peak but still substantial double-levered VIX ETPs leaves their issuers with around $70mm vega to buy on a sudden 5-vol spike. This number is not outsized given very strong VIX futures activity, but should a moment of illiquidity impair VIX futures liquidity it could become significant. 6/18/17
Feedback Loops: Short VIX ETPs growing – their issuers’ short covering could exacerbate a severe selloff scenario
Inflows and performance to short VIX ETPs raise their importance as a feedback loop. There is now over $100mm vega in short VIX ETPs – the most since the immediate aftermath of the Brexit vote. There are two ways in which short VIX ETPs can be a feedback loop, exacerbating vol-of-vol: daily rebalancing of the note and the potential for the products to be redeemed in a very severe scenario. The combination of large short VIX ETPs and also below-peak but still substantial double-levered VIX ETPs leaves their issuers with around $70mm vega to buy on a sudden 5-vol spike. This number is not outsized given very strong VIX futures activity, but should a moment of illiquidity impair VIX futures liquidity it could become significant. 6/18/17