How is an XIV lawsuit even possible?

[ajacobson]

Lawsuits will claim
Product issues
Exchanges didn't maintain FAIR and orderly markets
Brokers violated suitability issues
The overall construction and the dynamic nature of the overall portfolio was flawed
Funds, RIAs and retirement trustees are going get pounded.

Not an issue if I personally agree, but more a nature of the litigiousness of the US industry.

Good volatility experts - if such things exist - are being offered as much as $1500 an hour by the plaintiff's counsel community.

The FAIR and orderly markets issue was the core complaint in 1987.
Go try and explain the product to a circuit court judge accompanied by a plaintiff that has lost 100% of their net worth. Read them the prospectus and see if they understand it.

Investors can be ill-informed,stupid and greedy - yet they will still find plenty of attorneys to take their cases.

It will take many months and even years, but their will be a mountain of litigation - justified or not. Everybody in the food chain is going to end up defending themselves.

 

[gkishot]

Prospectus clearly states the long term expected value is 0. It also states they have a right to liquidate if it drops 80% (which it did). Just because you don't want it to happen, does not mean they can't do what they said they could.

The reality is that the world is based on the lowest denominator. This is why countries have warnings on escalators "not to trip and fall". The stupid dictate the rules and the rest have to suffer because of it.

If you go by rationality and logic, this lawsuit has nothing to stand on but in America, when it comes to lawsuits, anything is possible.

It failed to prove its mettle even for the short term investors.;-)

 

[d08]

It failed to prove its mettle even for the short term investors.;-)

Many traded it intraday that day and are fine, even if suffering some losses which were expected.
There needs to be a new category of traders - offer them no margin, no complicated products, no shorting, no volatile stocks and of course no ETNs, futures or options. Basically make them trade GE, WMT and F with a limit of 5% per position.
Rest of us will end up signing waivers to say that we know what we are doing or accept the risk as our own.

 

[gkishot]

Many traded it intraday that day and are fine, even if suffering some losses which were expected.
There needs to be a new category of traders - offer them no margin, no complicated products, no shorting, no volatile stocks and of course no ETNs, futures or options. Basically make them trade GE, WMT and F with a limit of 5% per position.
Rest of us will end up signing waivers to say that we know what we are doing or accept the risk as our own.

It failed to prove its mettle for the short term investors by closing down on them.

 

[prc117f]

Many traded it intraday that day and are fine, even if suffering some losses which were expected.
There needs to be a new category of traders - offer them no margin, no complicated products, no shorting, no volatile stocks and of course no ETNs, futures or options. Basically make them trade GE, WMT and F with a limit of 5% per position.
Rest of us will end up signing waivers to say that we know what we are doing or accept the risk as our own.

Yeah like a PDT rule but restrict them to SPY,QQQ,IWM and not allowed to short either or trade options,forex or futures.

And in order to trade outside of that you have to have a minimum of 150K trading capital and pass a basic test as well to unlock the full stock market.

But you have to show 3 years of level 1 trading before you can even take the test to unlock the full trading experience.

This should limit these problems and associated lawsuits.

 

[ajacobson]

This Tiny Hedge Fund Just Made 8,600% On a Vix Bet


This Tiny Hedge Fund Just Made 8,600% On a Vix Bet
By
Dani Burger
February 9, 2018, 2:29 PM CST Updated on February 9, 2018, 2:33 PM CST

• Denver traders pocketed $17.5 million on $200,000 VIX wager
• People laughed when the firm bought disaster protection in XIV

Not everyone got crushed when the market collapsed.



For traders at a little-known Denver hedge fund who saw it coming, it was the score of a lifetime -- a $17.5 million payday on a $200,000 bet.

Justin Borus

Source: Ibex Investors
“People were laughing at us, saying this could never happen, this should never happen,” Justin Borus, the 41-year-old founder and manager at Denver-based Ibex Investors, said in an interview. “We saw people pricing this as a 1-in-5,000 event, but it was more like a one-in-five-year event.”



Borus’s team bet that an exchange-traded fund linked to a calm stock market would go to zero in the event of suddenly volatile trading. The ETF almost did -- it lost 96 percent of its value.



Borus said they always believed in the wager, even when just about no one else did. But the jackpot still caught them by surprise. Two of the group -- Ari Rubin and Cooper Stainbrook -- were taking a long walk around the Colorado capital when the market started to go haywire on Feb. 5.

As they walked, the two of them -- Ibex’s director and chief data scientist -- were on the phone with a client and in passing mentioned rare, so-called black-swan events. The client told them to check out the VIX Index. One was happening as they spoke.

Extreme Velocity
“We came back to our screen and we’re watching the VIX and it’s moving with extreme velocity,” said Rubin, a former Israeli Defense Force soldier and ski bum turned money manager. “We’re laughing at every tick up until we realized what was going on. Cooper just looks at me and goes, ‘Oh man. The Vol-pocolypse just happened.’”

What was happening was the biggest plunge for U.S. equities in more than six years. Concern inflation was seeping into the economy triggered a decline in the Dow Jones Industrial Average that reached 6.3 percent at its lowest level. The benchmark index for equity volatility rose to more than twice its level the day before, crushing bettors who’d gotten used to years of very low volatility.

For about a year, Ibex had been buying options on the ProShares Short VIX Short-Term Futures ETF, ticker SVXY. The executives wouldn’t comment publicly on the exact mechanics of the trade or its profit, but they were detailed in a research note published by an adviser to the firm, Pravit Chintawongvanich of Macro Risk Advisors. Owning the contracts fit into the 15-year-old fund’s niche-product strategies. As of January, the 20-person firm managed about $350 million.

Volatility Spasm
Ibex’s plan was to profit when five years of a record-calm stock market burst into a spasm of volatility. Exchange-traded volatility notes that rose when volatility fell looked like a particularly ripe target, given the potential for a feedback loop that might send the Cboe Volatility Index surging in the event of market stress.

Other investors may have been lulled by the years of relative serenity in the stock markets. The average volatility rate for 2017 was lower than every single trading day from Dec. 22, 1995, to June 20, 2005. The VIX finished below a level of 10 -- super quiet! -- on only nine days before May 2017 and 68 days since.

That’s why so few have dared bet against short-vol, which had been minting money with breathtaking consistency. Even retail traders bought inverse VIX ETPs, hoping to make a quick and easy buck. That’s what intrigued Ibex.

Laughed in Their Faces
They went shopping for the right derivatives to place their bet. Brokers responded with ridicule -- options speculating the inverse VIX would go to zero would never pay off.

“Cooper and I go to New York a lot,” Rubin said. “In one instance, someone actually laughed in our faces at the type of options we were looking at.”

On Jan. 2, the managers put down $200,000 on what looked like a lottery ticket, with each SVXY put costing 34 cents. On Feb. 6, they sold the 6,300 contracts at about $28 each, leaving them with $17.5 million.


The firm had been in frequent contact with MRA’s Chintawongvanich, who’d been warning that the VIX notes could blow up for a while. Ibex was one of the few clients who actually heeded his warning, he said.

“Before this happened, I looked like the boy who cried wolf,” Chintawongvanich said. “There’s a risk that was underpriced by the market which we’ve been pointing out for a long time, and one of our clients capitalized on it, and I’m really happy for them.”

Ibex gives partial credit to a view of the Rocky Mountains outside the firm’s window. They’re 2,000 miles from New York and the conventional wisdom that said VIX ETPs could never blow up.

“The traditional mutual fund and hedge fund business is toast,” Borus said. “Most people investing in equities are going to index funds and ETFs. We believe in different strategies with higher risks and higher returns.”

After a sleepless Monday night, Rubin and Stainbrook celebrated by going skiing.

— With assistance by Brandon Kochkodin

Bloomberg about 30 minutes ago.

 

[Kim Klaiman]

It is not unusual for people to do something with complete lack of understanding and then blame others for their losses.

XIV did exactly what it was designed to do under those market conditions. People should start taking responsibility for their actions and not using lawyers to cover their blows.

• The Lessons From The XIV Collapse

 

[gkishot]

It is not unusual for people to do something with complete lack of understanding and then blame others for their losses.

XIV did exactly what it was designed to do under those market conditions. People should start taking responsibility for their actions and not using lawyers to cover their blows.

• The Lessons From The XIV Collapse

Yeah, it was designed to disappear into thin air. Good for them. What took them so long?

 

[Kim Klaiman]

Yeah, it was designed to disappear into thin air. Good for them. What took them so long?

People should do some reading before using an instrument. The termination event was clearly mentioned in the prospectus. Also simple google search would reveal few articles, like this one:

https://sixfigureinvesting.com/2014/05/how-does-xiv-work/

Some people treated XIV as license to print money. Once it blew in their faces, they are looking for other people to take the blame.

 

[gkishot]

The thing is we want it back. How come they leave us in the cold. You don't just leave and slam the doors on us and our business. Not nice.