So it all comes down to managing your risk, sizing your positions, hedging your tail risk and so on.
There is one point that makes sense to me out of all this that inverse etfs are at higher risk of liquidation since an 100% intra-day spike is easier to happen when vix is 9 then when its 15-20. But if you read what their own note says, a 12 point vix spike will translate into 50% futures move, so its not going to be enough to trigger liquidation. So realistically we are talking about higher then 12 point spike something like 20 point spike in vix to get us there. Its a pretty unlikely event, but even if it does happen it only affects inverse etfs, specifically SVXY so that $1B or ~100K vix contracts that will be bought in front 2 month. It is a sizable position, but is it really going to cause market to melt down? The long vol etfs won't trigger anything on futures market.
Here is volume/OI on Nov future on oct 19: 154K volume/372K OI.
here is what SVXY is holding: Short 14K nov, short 79k dec.
As I said, potentially an exciting day, maybe a week, thats it, nothing crazy
All Morgan Stanley note said is this: since vix is low, risks of a one day event that can turn nasty have slightly increased since its easier to get that intra-day 100% spike when vix is at 9, thats all, also pointed to increased retail vol shorts and etf factor, just pointed those things out, also don't forget we had North Korea situation taking place, so a fair warning nothing more.
There is one point that makes sense to me out of all this that inverse etfs are at higher risk of liquidation since an 100% intra-day spike is easier to happen when vix is 9 then when its 15-20. But if you read what their own note says, a 12 point vix spike will translate into 50% futures move, so its not going to be enough to trigger liquidation. So realistically we are talking about higher then 12 point spike something like 20 point spike in vix to get us there. Its a pretty unlikely event, but even if it does happen it only affects inverse etfs, specifically SVXY so that $1B or ~100K vix contracts that will be bought in front 2 month. It is a sizable position, but is it really going to cause market to melt down? The long vol etfs won't trigger anything on futures market.
Here is volume/OI on Nov future on oct 19: 154K volume/372K OI.
here is what SVXY is holding: Short 14K nov, short 79k dec.
As I said, potentially an exciting day, maybe a week, thats it, nothing crazy
All Morgan Stanley note said is this: since vix is low, risks of a one day event that can turn nasty have slightly increased since its easier to get that intra-day 100% spike when vix is at 9, thats all, also pointed to increased retail vol shorts and etf factor, just pointed those things out, also don't forget we had North Korea situation taking place, so a fair warning nothing more.
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