(A New) Record VIX Short

Recently, the potential for VIX ETPs to make a bad situation worse (as measured by vega-to-buy on a hypothetical N-vol. spike in the VIX futures curve) hit an all-time record.

Here’s the chart on that courtesy of Deutsche Bank:

“VIX ETP providers would need to buy around $150mm vega, which is ~50% of the average daily 1st/2nd/3rd VIX futures volume over the last 2 months,” Deutsche wrote, in a note out earlier this month, before adding that “this vega-to-buy is at a record highs, almost doubling since mid-July on inflows to short VIX ETPs.”

That’s probably the figure you want to be watching because although something would have to push vol. up initially (i.e. the fuse would need to be lit), the ETP rebalance quantified above is a source of significant concern for folks who follow this stuff closely.

Ok, but the headline number that everyone pays attention to is of course the spec net short as reported every Friday in the CFTC release. There’s considerable debate about how meaningful this actually is, but what there isn’t considerable debate about is the extent to which people like to talk about it, and that’s why it’s worth mentioning that through Tuesday, net shorts increased by 47k to 171k – that’s a new record:

As Bloomberg notes, “even as a percentage of the spec open interest, shorts were the largest since 2013.”

Make of that what you will.