A Nightmare On Wall Street – Updating The Feedback Doom Loop (Again)
Listen, there is a non-negligible chance that you have unwittingly sowed the seeds of this market's demise in your ill-advised attempt to make a side career out of being a vol. seller.
And relatedly, if you're someone who is long levered long VIX products, you too are in on this accidental plot to destroy the market.
See, lots of people have been trying to warn you about what it is these VIX ETPs are doing in terms of creating the potential for a nightmarish feedback loop, but not a whole lot
And I thought the Fed, via Yellen, said, “Just keep doing what you are doing relative to risk, and we will let it run forever. We have your back!”
The Central Banks were like a couple of parents who decided upon an action plan to discipline the child since the child was breaking the bounds of normality. But one parent, upon hearing a whimper for the child, threw the plan out the window, “Can’t have the child unhappy.” Upon that, the other parent, threw up his hand giving up with the knowledge he can’t do it alone. Now the child is going to push the boundaries even harder with the assumption, the parent will always back down.
I am the bystander watching this play out. If the child is nearly 10 years old and has been getting away with this, should I put my bet on the parents? Think not… But I am in cash waiting for the child to be put in jail later on…
Most participants in the VIX ETPs likely have no concept of what “Vega” means