• Research

Feb 6, 2018

S3 Analytics: Inverse VIX ETF Shorts up $639 million in Mark-to-Market Profits Today

There are over twenty active CBOE SPX Volatility Index based ETPs, but only eight with AUMs over $100 million and only seven with appreciable short interest. With the CBOE SPX Volatility Index (VIX Index) almost tripling over the last three trading days mark-to-market profit and losses have been significant.

Both long and short activity in the VIX ETPs has been considerable in 2018 with material long inflows in the inverse VIX ETPs and increased short exposure in the outright VIX ETPs. Looking at the VIX ETPs with tangible short interest we saw long inflows of $2.3 billion in the inverse VIX ETPs with just a $93 million increase in short exposure. The opposite was true in the outright VIX ETPs where there were $249 million of long outflows and increased short exposure of $1.2 billion. It is clear that VIX ETP investors were looking for volatility to continue to decrease in 2018.

With the VIX index spiking to over 37, 2018’s long and short VIX ETP activity was on the wrong side of the market. With the VIX rallying, the $2.4 billion of VXX, UVXY, TVIX and VIXY ETP short sellers are down $364 million in mark-to-market losses as of mid-afternoon trading today, bringing year-to-date losses to $1.45 billion. The $703 million of XIV, SVXY and ZIV inverse ETP short sellers are up $639 million in mark-to-market profits today as the XIV ETN opened down 94% this afternoon and the SVXY down 84%.

On the long side, the $2.5 billion of long shareholders in the VXX, UVXY, TVIX and VIXY ETPs are up $323 million in mark-to-market profits today while the nearly $3.0 billion of long shareholders in the XIV, SVXY and ZIV inverse ETPs are down $2.5 billion in mark-to-market losses today.

With Credit Suisse AG announcing it will recall/buy back its XIV inverse ETN after it lost over 80% of its AUM in aftermarket trading and triggered a termination event, short sellers will have to buy back shares to cover their short positions on or before February 20th, the last day of trading for the ETN. XIV stock borrow fees has jumped to 14.5% from 5.5% already, with some borrows hitting the 50% fee level. With 5.3 million XIV shares shorted, there will be some added trading liquidity for longs looking to sell shares to close out their positions versus shorts buying shares to cover their open short exposure.

Want deeper insight into the above analysis? Contact:
Ihor.Dusaniwsky@S3Partners.net
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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