XIV just went bust! Where do we go from here?
2/5/2018, a day that will live in infamy. That is the day the CBOE VIX index had the largest 1 day move in its HISTORY! +115% (See chart below)
Before 2/5/2018, the VIX was on a pretty incredible but unsustainable streak. It hadn't traded above 20 for 310 consecutive sessions. I posted about this streak weekly on StockTwits/Twitter. Investors started to get use to the fact that low volatility was here to stay. Hell the CBOE made a new strike price for the VIX of 8.50! People were actually beginning to think that we would never see a massive spike in the VIX again. That was the wrong way to think.
The 1 day spike was so massive that it made the VelocityShares Daily Inverse VIX ST ETN (XIV) liquidate! Now come the lawsuits, which I will not be a participant in as I knew full well that the product could go to 0 because of extraneous volatility conditions.
This is no doubt a 2008 like Armageddon event for short volatility etfs/etns. XIV turned out to be Lehman Brothers. It seems like the surviving products will turn out to be JP Morgan.... (SVXY, ZIV, etc...) Time will tell.
Where do we go from here? Nobody really knows, but earlier today I purchased SVXY at $11.64. Am I crazy? Maybe. Could this short volatility etf fall another 95% even from current prices? Yes. BUT, I'm willing to bet long on something with 5 year returns of -47.37% (as of the 12:26pm on 2/6/18), down more than -90% from its all time highs, lowest weekly and monthly RSI reading in its history, and o yea that whole volatility being the most mean reverting product in the world thingy.... You just need to remain solvent and have patience!
Thank you for reading!
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