(free note link in bio)
The VIX closes above 36 for the first time since February 5 when the short-volatility space blew up. Reminiscing the memories:
On Jan. 29 2018 I wrote:
"The further breakdown of the short-volatility trade caused by elevated, non-reverting VIX could cause a positive feedback. For instance, if market participants get out of XIV, those underlying short derivatives would have to be bought back and boost the VIX. The higher VIX boosted by the volatility "long squeeze" would feed back into XIV turmoil.
Additionally, those use to selling volatility and actively hold XIV, market participants could then resort to selling SPY or SPX futures as a hedge."
We all know what subsequently happen to the XIV, but traders still shorted volatility following the massive blow up, particular in the ProShares Short VIX Short Term Futures ETF (SVXY).
When U.S. equities rallied in Q2-18, the SVXY gained over 30 percent before popping again in October.
With a score of 2.95 going into today's session, and equities seeing a rate of change drop not seen since 2011, the market was primed for a rebound.
Beware, though. Risks continue to bubble to the surface. Historically, even in bear markets, multiple rallies of 5-10% are extremely common.
The VIX closes above 36 for the first time since February 5 when the short-volatility space blew up. Reminiscing the memories:
On Jan. 29 2018 I wrote:
"The further breakdown of the short-volatility trade caused by elevated, non-reverting VIX could cause a positive feedback. For instance, if market participants get out of XIV, those underlying short derivatives would have to be bought back and boost the VIX. The higher VIX boosted by the volatility "long squeeze" would feed back into XIV turmoil.
Additionally, those use to selling volatility and actively hold XIV, market participants could then resort to selling SPY or SPX futures as a hedge."
We all know what subsequently happen to the XIV, but traders still shorted volatility following the massive blow up, particular in the ProShares Short VIX Short Term Futures ETF (SVXY).
When U.S. equities rallied in Q2-18, the SVXY gained over 30 percent before popping again in October.
With a score of 2.95 going into today's session, and equities seeing a rate of change drop not seen since 2011, the market was primed for a rebound.
Beware, though. Risks continue to bubble to the surface. Historically, even in bear markets, multiple rallies of 5-10% are extremely common.
