How to name the latest "sell-off" please?

Earlier this week I attempted to purchase a decent chunk of XIV when the VIX hit 40. XIV is (was!) the inverse volatility tracker that lets you earn money as volatility declines. You could buy it anytime the VIX exceeded 25 and keep holding it until markets normalize again - then sell. In the past 5 years there were plenty of windows of opportunity on this, some of which I could take advantage of.

However, I soon learnt the XIV unwinding procedure was most likely the cause for the whole sell-off (1.9bn market value of XIV and more than 225bn worth of stock behind). Now taking time to study more what other WMD (weapons of mass destructions) could be out there. Apparently the volatility tracking product space has assets north of 2 trillion behind it. If the SEC where to forbid and restrict the size of these products, many other product service providers would have to unload their holdings in a short period of time. So far the only other inverse volatility tracker I could find is the EXIV (issued by UBS), but given the high regulatory shutdown risk, I’m staying out of it for now.

Writing options would be something worth considering now. Vols haven’t been that juicy in a long time! But I stay on hold for now.

Here some related articles for interested readers:

Some made huge profits:

While others lost big time (but hey, who the Fxxx keeps “hodling” on to inverse vol trackers with VIX below 10 anyways…):

So they pulled the plugs:

This has to be cleaned-up now: 2 Trillion!!!

The whole thing reminded me of this scene, you kind of wonder what else is out there:

Anyone else out there following these developments? Any add-ons or deviating views? Would love to see how others in the Mustachian Forum observed these developments. What’s your take on what has happened?

For me the “sell-off”/ plunge/ or stock market correction is only over once it got a name! So far it hasn’t got a name. Would somebody please name it already ;o)


There is also the SVXY, which is the same as xiv
Contrary to common believe XIV is not the inverse of VIX. See

I don’t recommend to play with this type of tool exept for fun.

So we got EXIV and SVXY. Let’s compare.

The VIX is no investable index, so no tracker or inverse tracker can give you 1:1 performance - but what I do like about the idea is the direction and scope that it gives you. Buying the XIV doesn’t require the market go up or down, volatility simply has to calm down, and you’ll earn money. That’s the beauty of it. XIV used to do that quite nicely.

Very curious: Did you ever buy SVXY or any related securities? If yes for what purpose?


So to me, i must admit:
looks interesting! like, i could make some serious returns with it!

but in total, it is a “i don’t have a clue what’s in there and i understand nothing about it”- thing, so i will do the “keep my hands off or get burned” - trick :slight_smile:


Wise words @nugget - I’m also not going to get in now. Depending how this drama’s gonna end, it’s highly likely that eventually the SEC or any other regulatory body could limit these products. Then the question would exactly become: How did they do it in the first place and how to replicate it ourselves. That’s something else I want to find out, but it must be rather complicated (strings of options, rolling contracts, etc.).


Please keep in mind that there are beginner investors on this forum. Playing with volatility indexes is not something I would advise unless you really know what you are doing (and I mean really, really, really know).

As an example, @Financial_Imagineer talked about XIV (which was an ETN tracking the daily inverse performance of the VIX index). The VIX measures the volatility of the S&P500. So basically, buying XIV was a bet that the volatility of the S&P500 would decrease. And it used to be a very crowded bet! (so crowded that there is even a “Trade XIV” subreddit). Until last week, it looked like this product was returning nice and steady returns, right? Going from 80 to 140 in six month in an almost straight steady line is quite enjoyable.

Until last monday. XIV lost 93% of its value. The issuer said he would close the product at the end of the month.

So I will repeat it once again until I get hoarse : Shorting volatility is a very dangerous bet.
You only have a little to gain, which you gain often, but the rare times where there is volatility on the market, it is a lot of volatility and you are wiped out.

PS : this graph reminds me of Nassim Taleb’s comparison of the black swan with a thanksgiving turkey.
The first 1000 days of the turkey’s life, the animal thinks that the farmer is very commited to the turkey’s wellbeing. The farmer feeds it, he provides shelter… And each coming day confirms this feeling and add statistical evidence to this statement! Until, of course, the thanksgiving day and this anecdotical visit to the butcher :

So it looks like the short vol turkeys have met with Thanksgiving.


Now that this warning is written, here are some of my thoughts for @Financial_Imagineer :

If this is true, then people are going to want to buy vol at any price (forced sellers).
This means that volatility is going to increase substantially, and thus, option prices are going to increase.

Sure, option premium are going to be high in the coming time. but if you sell options, you still are short vol in some manner. You have a little bit to gain (the option premium) and an awful lot to lose (unless these options are covered).
And if last monday’s episode comes back (we are still waiting for a big correction to come), a lot of people will wish they never sold these options. Selling options is pinching pennies in front of a rollsteamer.

with that I agree :slight_smile:
As Yogi Berra said, “It ain’t over until it’s over”. I am curious to see how it winds out, but I would not short vol with a ten feet pole…

Wow, what a great reply @Julianek, I love the Yogi Berra quote!!! I’m on the sidelines this time as it seems there’s more unknowns to it below the surface for now. For me shorting volatility was the best trade when volatilities were high. You never know when volatilities spike up, but you know for sure, that they won’t stay up there. That’s why I liked this trade a lot as a tactical (!) side bet, not exceeding 5% of your total portfolio. It could and did enhance my long term performance. But I always got out of the trade again, never kept it for more than 2 weeks. Let’s see what other “ugly” things will come to our knowledge in the days and weeks to come. Hopefully it’s not a systemic clusterfuck like 10 years ago. Cheers!

VIX usually hovers at levels between 13-17, if it crossed 25 to the upside you got to watch and understand why, if it was close to or reached peak levels (all time high was at Lehmann’s crisis at 89!) it usually started to decline rather quickly again - and you could short volatility. The past few opportunities where Brexit and Trump election. Once volatilities “normalized” around 13-17 levels, you’d exit the trade and wait for the next unexpected upwards move - and repeat.

As @Julianek mentioned, please ensure you understand the mechanics sufficiently before engaging. This is not an investment but a short term speculation that the world usually returns to “business as usual”.

My nickname for the XIV was: The “after-event-insurance”, as you could earn more money right after a crash has hit. Here some historic charts of the VIX for better comprehension.


I really see your point and I would say you are right most of the time.
The problem with this kind of bet is that what matters is not how often you are right, but what happens when you are wrong. To take another Taleb’s analogy, would you take a plane that is 99% safe? Of course not, because the consequences of being in the remaining 1% are not tolerable.

Same here with shorting the VIX after a spike. Most of the time, it is very very likely that the VIX will go then to lower level. But this frequency is irrelevant.
For instance, at the time of these writing, the VIX is at 26 after having been at 50 monday evening.
There is 99.9% chances that it will go lower. But if you have an unexpected event (let’s say, this afternoon Credit Suisse announces its bankrupcy) then you can be sure the VIX will go through the roof, and your bet wil go to 0 as well. In this kind of bets, what matters is the payoff when you are wrong…

Edit: I quoted Taleb twice in this thread, so for those who would like to go a little bit deeper, I really advice to read his books Fooled by randomness and Antifragile. The Black Swan is not as good in my opinion, but quite thoughtful as well.

I’m a buy and hold investor myself, but I like to have a tactical overlay. Please find below the probably most interesting stuff you could have learned from the last week: SVXY is my new tool going forward (RIP XIV) as its even possible to write/buy options on it!

Here, two success stories of hedge funds who got it right this time and how they did it. You don’t need a lot of cash-out to buy yourself into this trade. There are tradable options on the SVXY! Let’s assume you have a $1mio portfolio producing 4% dividends a year, if you tactically reallocate a tiny part of these holdings into the right structures, you can have a much smoother ride.

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. “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.”

Cole’s Artemis Vega fund, which he started with $1m and has now attracted nearly $350m of investors’ cash, is designed to “generate opportunity from chaos” – and he believes there is far more chaos coming.

His bets paid off this week as global stock markets collapsed, rallied and then fell again. Artemis is designed to benefit from such periods of turmoil and volatility. Market volatility, measured by the Chicago Board Options Exchange (CBOE) Volatility index known as Vix or the “fear index”, spiked 84% on Monday – the biggest one-day increase since the 1990s. It hit 50 on Tuesday and was around 30 on Friday, far higher than it has been for the last two years when it only poked above 15 a couple of times.

“It’s been a good week,” Cole said in a interview with the Guardian. “The explosion in the Vix and the rise in volatility is something we have been predicting, and waiting for, for a long time. We were well prepared to benefit from it.”

Seriously, this is the one outlier of the hundreds of thousands of investors, that benefited from this particular market move. Since there are so many, you can find one for any day that made big money. To me this is no different than those few that win the lottory every week.

I actively refuse any feeling of “oh damn i missed out on that one”. It’s chasing windmills. At least for me, who is not willing to spend more than an hour per month on my investments.

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As mentioned, I’m a buy-and-hold investor myself as well. And I’m not promoting FOMO or anything thereof. Not at all! But when large shifts happen you can always learn from the ones who did something outstanding. That’s my aim behind analysing and sharing all of this. I’m not saying we all should invest like them or even worse: buy their hedge fund now with all your money. No.

Apologies if this came across the wrong way. I am simply fascinated by how a simple tool (a cheap put option bought at the right time) could be eventually embedded as a tactical overlay in my own portfolio going forward. I bought and sold XIV several times in the past after huge vol spikes (Brexit and Trump election where the last two events) and profited nicely from decreasing vols. However, I usually offboarded the trade within 2 weeks and I never used more than 5% of my portfolio.

The fact that SVXY has tradable options will reduce my future cash portion drastically and I’ll be able to “play” (that’s what it is - a tactical overlay play) volatility both ways.

Maybe I’m spending a little bit more time on my investments than others. You could call me an addict ;o) I’m hooked. And I do believe in ongoing never-ending learning. Truly!

What other lessons do you believe can be learnt from the recent sell-off that are different from past ones? That’s how we can improve and get better together. Share what you see, feel and learn.

Happy weekend & cheers!

I’m with @nugget on this one. I view these sorts of stories as the one or two guys that got lucky this time around and will probably join the loser’s group the next time. It’s classic survivorship bias.

I guess there’s nothing wrong with “gambling” with a small part of your portfolio, as long as your potential loss is small. I don’t really understand put options enough to not be freaked out by them, but I’d be happy to learn.

I just heard this short podcast about the VIX, I thought you might be interested:

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Here’s another podcast about this: (last one, I promise)

This one was way over my head, but I bet you experts will enjoy it.

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Thanks for sharing, great stuff!