Barclays has announced a loss of GBP 450m related to the sale suspension of OIL and VXX two weeks ago. The operational blunder is impressive.
We are currently in the unusual market situation called “market up, vol up”, where volatilities go up while the market rallies. It is driven by retail purchases into the tiny calls, notably for the small caps and the meme stocks.
UBS got flack for recommending VIX ETFs to its clients. This suitability case has in fact deep roots in a significant ETF classification challenge: many product databases are mishandling the wide diversity of ETNs. Significant litigation is to be expected as a result.
On February 5th, 2018 (Volmageddon) the volatility reverse ETF XIV lost 96% of its value in the space of a few hours. Its iNAV was also miscalculated for an hour.
We have now discovered why: S&P Dow Jones was understaffed and did not release an ‘auto hold’ safety.
This human error contributes to current debate on the need to regulate index providers as investment advisors.
This week saw some really unusual moves, 10Y repo, intraday volatility, stock rotations, A harbinger of more volatility to come?
Geode handles $700 bn of Fidelity’s index tracking assets. Geode Diversified, the much smaller hedge fund business, took a 36% loss on COVID’s volatility rally. It is now getting the axe.
‘When you combine ignorance and leverage, you get some pretty interesting results.” Warren Buffett
Three good notes from the derivatives research teams of Morgan Stanley, Société Générale, and Nomura point to a potential squeeze in the VIX, as a result of the increasing retail activism. This technical post explains the contents of the research papers. Spoiler alert, yes, the VIX is prone to a squeeze.