Why Cboe Global Markets, Inc. Stock Is Sinking Today

Two investment products linked to the Cboe Volatility Index (VIX) imploded in U.S. after-market trading on Monday.

Investment bank Credit Suisse has the the biggest holding in the XIV ETN (exchange traded note), and calculations by ForexLive indicate the bank may be facing losses of $US500 million in connection with their position. After the dust settled, the combined assets in the two exchange-traded products shrank to $135 million.

US stocks plunged almost 8 percent in three trading days until Tuesday as an explosion in implied volatility readings prompted investors to dump equities on growing anxiety about overheating economies, inflation and rising borrowing rates. Volatility, of course, is exactly what investors are getting as financial markets plunge for the second day in a row. It was set up so that if volatility fell, you would make money.

Yet the popularity of these vehicles might have contributed to one of the most violent moves in US equities in history: one that saw the Dow Jones Industrial Average slump more than 6 percent in a span of six minutes.

Trading in the VelocityShares Daily Inverse VIX Short-Term ETN, ProShares Short VIX Short-Term Futures ETF and VelocityShares Daily Inverse VIX Medium-Term ETN has been halted and all three products had a short-selling restriction placed on them by Nasdaq.

This was the first serious test for these ETFs, most of which were launched after the global financial crisis.

"If vol (implied volatility) stays between 20 and 30 for a protracted period of time, some of the existing volatility-targeting strategies would have to de-risk", said Vineer Bhansali, chief investment officer at California-based investment adviser LongTail Alpha, a firm that runs tail-risk strategies using options and other types of derivatives.

More news: Raheem Sterling's miss of season allows Burnley to hold leaders City

Credit Suisse's share price has recovered slightly following a statement to the effect that the bank's exposure to the XIV ETN was fully hedged and CS therefore won't be affected by any of the losses relating to it. To professional investment managers, volatility is measured in multiple ways.

Though estimates of how much money is actually parked in such strategies are hard to come by given a general lack of transparency, some broad numbers exist. On the other hand, values lower than 20 are considered synonymous with low volatility, implying the market is not stressed and rather confident about future prospects. But effectively, any option is a bet on the volatility of the underlying asset. Since it trades as an ETF, it should theoretically open regular trading on Tuesday down about 95% from the previous day's close.

As the stock market suffered through its worst stretch in years earlier this week, readers of Business Insider kept asking one interesting question: What on earth does this mean for Seth Golden?

"Even though at some point investors will show up to buy the dip in stocks, we don't think short volatility is a buy here", said Stephen Aniston, president of investment adviser Black Peak Capital, in CT.

"You have some less sophisticated investors that don't understand the VIX complex in total, not to mention the F-1 filings of the products they're participating in", said Seth Golden, president of Finom Group, adding that many of them were pushed out of the trade.

The warning also served as a victory lap of sorts for Kolanovic, who had been warning about a volatility blow-up for months leading up to Monday's chaos.

(Copyright © 2015. All Rights Reserved.)
 
Recommended

Morocco triumph with CHAN after crushing Nigeria 4-0

Hong Kong activists' sentences overturned
What we are up against is the court taking a very narrow definition of non-violent civil disobedience actions", said Wong.

Man City held at Burnley after late Gudmundsson equaliser
Guardiola can say that all he likes, but we all know that Sterling's miss has directly cost City two points on this occasion. Interesting post? Please share! The most important thing we have done is focus.

North Korea defends military parade before Olympics
North Korea is usually extremely sensitive about outside criticism of its human rights situation. She received a silver medal for her performance in figure skating.

Market drop: Trump focused on long-term 'fundamentals'
One by one, each of the channels dipped away from the president's address because the DJIA was dropping at an alarming rate. The last biggest intraday point dive came on September 29, 2008, when the Dow fell 777 points.

Several feared trapped after Taiwan quake
The ministry also issued a safety advisory to Japanese traveling to Taiwan to use caution and postpone visits if possible. Firefighters could be seen climbing ladders hoisted against windows as they sought to reach residents inside apartments.

NVIDIA Corporation (NASDAQ:NVDA)
Following the completion of the transaction, the director now owns 26,104 shares of the company's stock, valued at $5,144,315.28. The fund owned 4,795 shares of the computer hardware maker's stock after selling 1,340 shares during the quarter.

No. 17 Buckeyes hold off IL for 20th win
It was just a culmination of a lot of ups and downs over the past few years. "I think it's an experience thing", Bates-Diop said. Ohio State has won six of the last seven meetings with IL , but the two have yet to meet this season.

Celebrity Big Brother champ Courtney Act takes final swipe at Ann Widdecombe
Courtney Act bonded deeply with housemate Andrew Brady . " If you're homophobic, you're homophobic ". Once inside, he gives Courtney a hug and says: 'You are my worthy victor , okay.

'Sense of pride, community' found through Black History Month kick-off
Foster was introduced by Nekkita Beans, president of the university's Black Student Union . He's also credited as the source of Black History Month.

Russian athletes in new authorized battle with IOC
On Sunday, the International Olympic Committee president Thomas Bach had expressed disappointment on the CAS decision to clear the Russian athletes.

Snap shares surge 35 per cent after app redesign sparks user growth
In November, Snapchat unveiled a redesign that separated out peer-to-peer interaction and curated/professional content. Year-to-date, SNAP has declined -3.76%, versus a 0.85% rise in the benchmark S&P 500 index during the same period.

United Kingdom court to decide validity of Assange arrest warrant
The WikiLeaks creator faced extradition to Sweden, where he was sought in an investigation for sexual assault ( The Guardian ). The investigation and charges in Sweden were dropped a year ago , but Assange's British arrest warrant remains outstanding.

Best For Britain: "It's No Secret, Our Mission Is To Stop Brexit"
Carmakers Nissan, Toyota and Honda were due to attend the talks, along with representatives from banks and drug companies.

Fans file petition to ban Cris Collinsworth from calling Eagles games
Eagles defensive end Chris Long made a decision to watch a rerun of Sunday's game on NFL Network Monday night. On Monday, some Eagles players, and their fans reacted to the job done by Al Michaels and Cris Collinsworth.


More News

News
More News