ETFs started off as a ‘savior’ product for the retail investor, giving him options at a low cost. That product has turned into a monster in my opinion that has both resulted in distorting the market and destroying accounts. Investors experienced the 2015 flash crash which resulted in index funds dropping 35%+ intraday. At least by the end of the day the prices of these products correct.
Unfortunately many investors in ETFs related to VIX products will be enduring some permanent loss of capital. Below is SVXY which is the ProShares Short VIX ETF and has dropped from over $135 to $12.
Credit Suisse had a volatility product which closed down 93% on Tuesday. The last day of trading for VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV) will be Feb. 20 as Credit Suisse will liquidate the product. XIV dropped from almost $150 to $6 in less than 3 weeks with the majority of the move ($99 to $7) in 1 day! The product was once valued at $2.2 billion.
Also, according to the Financial Times (link):
Japanese bank Nomura also announced the closure of a similar product that rewarded investors for low volatility, writing to clients that “we apologise from the bottom of our hearts for causing great inconvenience for the holders”.
And if you are thinking you can make money on the long VIX ETF then think again because by design the ETF declines in value over time. So your timing really has to be spot on.
As you see above, the investor who wanted to bet on rising volatility just make his money back if he invested on September 12th, 2017. All previous investors lost money and only those who traded in the last couple of months are ahead.
So the best thing an investor should do is stay away from these products.
