The Hate on XIV, SVXY is Unfounded

[mt2rules]

I have seen many people on ET and Twitter talk about how terrible these two products are and how stupid people were for trading them in the first place. This is a flawed line of thinking. These products were very open and transparent about their goals, holding a 30 day rolling maturity of short VX futures. If it was not the traders intent to short VX futures, they should not have traded this product. If you had been short both the front and second month futures, you would have had the same outcome (most likely a margin call before the end of the day). The only problem with these products was that people who were uneducated in them started trading them without having any idea what they were trading and how they had moved in the past when there was sudden high volatility. It seems ridiculous to me that people are now wanting to sue Credit Suisse over their personal use of the XIV. These products not only did exactly what they were supposed to do, but also shielded the investor in the case of a greater than 100% loss which not all brokers would have done. Especially in the case of the investor holding VX short in the event of a flash crash like what happened on Monday in the AH session.

To put this a different way, if an insurance agent was selling hurricane insurance right before people were predicting a hurricane and hoping to collect a large premium from it when the hurricane didn't happen, would it make sense to absolve them of their loss from the people who bought the insurance?

 

[Saltynuts]

Haha, lawyers gonna lawyer, you know that.

 

[beerntrading]

I have seen many people on ET and Twitter talk about how terrible these two products are and how stupid people were for trading them in the first place. This is a flawed line of thinking. These products were very open and transparent about their goals, holding a 30 day rolling maturity of short VX futures. If it was not the traders intent to short VX futures, they should not have traded this product. If you had been short both the front and second month futures, you would have had the same outcome (most likely a margin call before the end of the day). The only problem with these products was that people who were uneducated in them started trading them without having any idea what they were trading and how they had moved in the past when there was sudden high volatility. It seems ridiculous to me that people are now wanting to sue Credit Suisse over their personal use of the XIV. These products not only did exactly what they were supposed to do, but also shielded the investor in the case of a greater than 100% loss which not all brokers would have done. Especially in the case of the investor holding VX short in the event of a flash crash like what happened on Monday in the AH session.

A post of mine from another thread:
Typically I'd agree with this 100%, but this isn't one of those cases. Even fully understanding the prospectus, there's a hard wired gap in human perception of risk vs. perception of reward. No amount of disclosure will get past this.

Also, making this an ETN gives the illusion of a zero-value point where losses end. They do in absolute terms because CS retains the risk beyond that. But the problem is it looks like the scale goes from 0-115, and risk is perceived as a percentage of that, where in reality there's no reason the underlying assets couldn't get to -100 as a nav value or even lower. So the range of values to calculate risk as a percentage of might better be -100 to + 115. And suddenly the 80% termination event becomes 50%...

To put this a different way, if an insurance agent was selling hurricane insurance right before people were predicting a hurricane and hoping to collect a large premium from it when the hurricane didn't happen, would it make sense to absolve them of their loss from the people who bought the insurance?

Actually, in Lloyd's (the insurance market in London), they'd ring a bell--incidentally salvaged from the HMS Lutine--whenever news of a ship running aground / sinking / taking on water...and the floor would go nuts with people trying to sell off their insurance cover of it, and others speculating on the chances of salvage and / or rescue. I've heard stories of people taking on the full risk of the loss for as much as 50% of the policy limits.

 

[qxr1011]

I have seen many people on ET and Twitter talk about how terrible these two products are and how stupid people were for trading them in the first place. This is a flawed line of thinking. These products were very open and transparent about their goals, holding a 30 day rolling maturity of short VX futures. If it was not the traders intent to short VX futures, they should not have traded this product. If you had been short both the front and second month futures, you would have had the same outcome (most likely a margin call before the end of the day). The only problem with these products was that people who were uneducated in them started trading them without having any idea what they were trading and how they had moved in the past when there was sudden high volatility. It seems ridiculous to me that people are now wanting to sue Credit Suisse over their personal use of the XIV. These products not only did exactly what they were supposed to do, but also shielded the investor in the case of a greater than 100% loss which not all brokers would have done. Especially in the case of the investor holding VX short in the event of a flash crash like what happened on Monday in the AH session.

To put this a different way, if an insurance agent was selling hurricane insurance right before people were predicting a hurricane and hoping to collect a large premium from it when the hurricane didn't happen, would it make sense to absolve them of their loss from the people who bought the insurance?

first off most people are stupid since most of them have no clue what they do but do it anyway

as for the product and its developer as well as borkers, i can foresee that people may sue credit Swiss and others and am not sure that they will loose

in a country where the seller is responsible for the spilled hot coffee anything can happen

and what do you care?

 

[Handle123]

I am truly amazed at people and their dumb hoggish greed, I trade these markets as do many other traders who look for same patterns, there is a floor and as anyone can see price hits and goes below 11.00 enough times to make it profitable and in this case very profitable, and best to hedge, cheap insurance. But so many thinks bad won't happen to them, not only does it happen, you can find it will happen over and over again in our lives. I would never think of taking an opening position by selling something near the floor, but if I did, Hedge it.

 

[tommcginnis]

People had been going fast on motorcycles for a long time, but in the mid70s, they were topping 100 mph regularly, and without blowing up. On the roadrace circuit, they were taking these well-executed, neutral-geometry monsters and goosing them with sticky tires and exacting suspension and hurricane-sized carburetors....Some even had teensy little bubble fairings over the headlight/instrument covers and shaped pieces for the rear of the seat -- so-called "bikini fairings" and seat "boat-tails"... And you had to call them "Superbikes." And it was nothing short of an arms race (for the manufacturers) to see who could bring the biggest, baddest-ass monster to market. {cue gratuitous M/C porn}

Eventually, the Nanny Statists rolled in and called for government restrictions on engine size, displacement, top-speed, *fairing* usage.... exactly analogous to the then-contemporaneous "Assault Weapons" campaign: this was the "Assault Bikes" campaign, with a resounding question/declaration of, "That's not reasonable!" What do you need that for?? Nobody needs that! Nobody with Common Sense would ride a bike like that! Blah-blahblah-bee-blah. This went on into the mid-80s (with, now, all the manufacturers saying "Screw it!" and putting out full-faired bikes in factory racing colors), until Ronald Reagan hisse'f had to face down one of his own regulators and call a halt to things.

And now, it's 2018, and probably half of the bikes out there are road-race replica "crotch-rockets" or stretched-out Easy Rider wannabees, and people falling down a lot. Meh!

The point?? These products were developed and brought to market as narrow-use vehicles; the public will catch up to that. And AS IN EVERY MARKET, gains and losses will happen, every day.

"Stay away from the pointy end, dear. And if it's hot and will burn you, don't touch it twice."

 

[ajensen]

I have seen many people on ET and Twitter talk about how terrible these two products are and how stupid people were for trading them in the first place. This is a flawed line of thinking. These products were very open and transparent about their goals, holding a 30 day rolling maturity of short VX futures. If it was not the traders intent to short VX futures, they should not have traded this product.

VIX futures closed artificially high at 4:15pm on Monday because of the trading that the managers of XIV and SVXY did. I think that when you are managing an ETF or ETN and you have become so big that your own trading may cause your investors to suffer an almost 100% loss, that you should try to fix the problem by shrinking the funds are at least not allowing new shares to be created.

If the VIX ETNs were wiped out because of a general market crash with the S&P down 10%, that would be fair. When you own an ETF or ETN, being wiped out because of the trading of your own fund feels wrong.

 

[beerntrading]

VIX futures closed artificially high at 4:15pm on Monday because of the trading that the managers of XIV and SVXY did. I think that when you are managing an ETF or ETN and you have become so big that your own trading may cause your investors to suffer an almost 100% loss, that you should try to fix the problem by shrinking the funds are at least not allowing new shares to be created.

If the VIX ETNs were wiped out because of a general market crash with the S&P down 10%, that would be fair. When you own an ETF or ETN, being wiped out because of the trading of your own fund feels wrong.

Did you actually see this in the tape?...On another thread there's speculation about 260k contracts dumped on market orders out of XIV.

 

[lindq]

When you own an ETF or ETN, being wiped out because of the trading of your own fund feels wrong.

No matter what the market, no matter what the instrument, the same rules always hold true:

1. USE STOPS
2. HOLD OVERNIGHT AT YOUR OWN RISK

The folks who were hurt this week ignored one or both.

 

[spread'em]

People had been going fast on motorcycles for a long time, but in the mid70s, they were topping 100 mph regularly, and without blowing up...

Good example which brings to mind the infamous Group B Rally which to this day had the most powerful rally cars. Several deaths in the crowds lead to restrictions on the sport but it could be argued that the outrageous behavior of the crowds certainly didn't help. Humans always think bad things only happen to others and take extreme risks until one day they get hurt then look to blame some other higher power.