Analysts are attributing part of this week's decline to unwinding of etf/etn positions

[Same Lazy Element]

The significant effects of rebalancing leveraged ETFs on market volatility has been studied ad nauseum and a cursory glance at the literature provides copious amounts of actual rigorous analysis that refutes your "calculation". Here's a sample. Last response, I'm done wasting my time in this thread.

Since we are quoting papers, how about this (I think the source is a bit more reputable than someones masters thesis):

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2504012
Do Leveraged ETFs Really Amplify Late-Day Returns and Volatility?

51 Pages Posted: 2 Oct 2014 Last revised: 25 Jul 2017

Ivan Ivanov
Board of Governors of the Federal Reserve System

Stephen Lenkey
Pennsylvania State University

The design of leveraged and inverse exchange-traded funds (ETFs) has raised concerns that they may exacerbate volatility in financial markets by mechanically rebalancing their portfolios in the same direction as contemporaneous returns. We show theoretically, however, that capital flows can lower ETF rebalancing demand and completely eliminate it in the limit. Empirically, we find that capital flows substantially reduce ETF rebalancing demand, even during periods of severe market stress. After accounting for capital flows and standard risk factors, we find that the impact of ETF rebalancing on late-day returns and volatility is economically insignificant.

Anyway, my calculations are consistent with what the actual market practitioners (i.e. quant PMs and traders) use, not what some academics have concocted to attract attention. Unlike them, I (and my competitors) actively trade leveraged ETFs and frontrun their impact, so we have a pretty deep insight into the market microstructure.

 

[Sig]

The significant effects of rebalancing leveraged ETFs on market volatility has been studied ad nauseum and a cursory glance at the literature provides copious amounts of actual rigorous analysis that refutes your "calculation". Here's a sample. Last response, I'm done wasting my time in this thread.

So you make a claim in a conversation on a subject where there are legitimate questions and then you act disgusted when those in the conversation ask you to quantify it? You may very well be right, but with that kind of attitude who would want to ever interact with you?

 

[piezoe]

So you make a claim in a conversation on a subject where there are legitimate questions and then you act disgusted when those in the conversation ask you to quantify it? You may very well be right, but with that kind of attitude who would want to ever interact with you?

It serves's us well when stay in touch with our fallibilities. Your correspondent is not in touch with his.

 

[Same Lazy Element]

So you make a claim in a conversation on a subject where there are legitimate questions and then you act disgusted when those in the conversation ask you to quantify it? You may very well be right, but with that kind of attitude who would want to ever interact with you?

On the other hand, he seems pretty passionate and confident about him being right. It's been a while since I felt like that about anything (except maybe my dog).

Market microstructure (at any level) is a tricky thing to study unless you are in the trenches. The best example are the evil HFT frontrunner studies by the garden variety of academics. For example, if you naively study the simplest arb there is, timing between the ES mini and the SPDR, the market data will appear faster than the speed of light. However, if you are involved in that business you'd know that the market data is only part of the story, order processing and its associated propagation and games is another. Smart speculation with heuristics, statistics, and intelligence, artificial or otherwise, lowers the "apparent latency".

 

[Sig]

PS. as a complete aside, but on the topic of things not being what they seem to be, here is a very interesting paper: https://www.autodeskresearch.com/publications/samestats

I love this kind of stuff, thanks!

 

[NewTraderAdventure]

So in laymans terms , what positioning explains the Fri ramp eod ?

 

[Real Money]

Unlike them, I (and my competitors) actively trade leveraged ETFs and frontrun their impact, so we have a pretty deep insight into the market microstructure.

Hi sle, what do you think about all of the VIX speculation/positioning via ETF/ETN and futures?

Do you think that played a major role in the speed/severity/momentum during the selloff? I know a lot of guys love to short the vol index and it's various derivative securities.

Thanks.

 

[ironchef]

All these discussions are over my head. All I care is, as an amateur retail, what should I do?

 

[Same Lazy Element]

Hi sle, what do you think about all of the VIX speculation/positioning via ETF/ETN and futures?

What do I think about it? I think it's pure evil. I think we should ban VIX futures and send all VIX traders to Siberia!

Do you think that played a major role in the speed/severity/momentum during the selloff? I know a lot of guys love to short the vol index and it's various derivative securities.

I am pretty sure a lot of people got stopped out and that contributed to the vol being bid. This said, most of the selloff was non-vol driven, we even had moments when both spooz and vix futures where down (not for long).