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Trader: ‘This Has The Potential To Destabilize The Entire System On Its Own’
Via Kevin Muir of “The Macro Tourist” fame
In 1992, the CBOE hired Robert Whaley to develop a tradeable volatility product on equity index option prices. A year later, in 1993, the VIX was born when the CBOE started publishing real-time quotes on the implied volatility of the calculated S&P 500 index options. In those early days, I very much doubt Robert ever imagined his volatility index would someday be the cornerstone of some of the world’s most actively traded ETFs. In fact, for
Cute article, that tries to be scary, but let me raise that scary level. How about this – you call it “right” and go long Vol but your counterparty defaults. Isn’t that the necessary corollary of: “….some market participants will find they do not have adequate margin…” and “Who is on the hook? Chances are, it’s the clearing houses.” If I’m long the VIX via VXX or options thereon, for example, and have suffered the insulting pain of being wrong forever, but finally I am right, and the VIX goes to just 25 or maybe 30 (not really a biggie) but all of the counterparties and the clearing houses just pack up and go home – and default on my trade. I may be exaggerating as to a move to 25 or 30 on the VIX, but how about if it really gets funky and goes to 50+?
I could end up being really, really right but also broke. Should I rely on clearing houses to do the right thing? I think not – unless of course they get a US Treasury bail out.
I guess I’m buying moon rocks, then.
You could always hedge with a Bitcoin future.
I just re-read this article. So prescient.