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Jan 5, 2018

S3 Analytics: VIX ETF Short Sellers Getting Less Bearish

The CBOE SPX Volatility Index, the VIX Index, was down 21.4% in 2017 and predictably short sellers of VIX ETFs had a profitable 2017 while short sellers of inverse VIX ETFs did not fare well. With the VIX index continuing its downward low volatility trend the same is holding true so far in 2018.

Since the beginning of December 2017 short sellers have covered 13% of the long VIX ETF/ETN exposure and increased their inverse VIX ETF/ETN short exposure by 8%. Short sellers of the long VIX EWTFs/ETNs are beginning to cover their shorts and pocket some of their profits while short sellers of the inverse VIX ETFs/ETNs are increasing their exposure and looking to recoup some of their losses.

This may be an early indication that VIX ETF/ETN short sellers are becoming less bearish/more bullish on the VIX and are seeing January’s sub 10 levels of the VIX as a floor. This sentiment is partially reflected in long VIX ETF activity as well. Shareholders of the long VIX ETFs/ETNs have sold $53 million of their long exposure and shareholders of the inverse VIX ETFs/ETNs have sold off $651 million of their short exposure – VIX bulls are slightly less bullish but VIX bears have trimmed their exposure dramatically, closing down over 20% of their open positions.

If VIX ETF/ETN activity is a reflection of the market’s short term VIX sentiment we are seeing both long shareholders and short sellers becoming less bearish and expecting the VIX index to at least plateau around the 9 handle level with a possible move back into the double digits. Investors are looking for volatility to make a comeback in 2018.

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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