Hey Guys, It Looks Like XIV Is Done. The Short Vol. Products Are Toast.

Hey guys?

XIV looks like it might be done. It’s down 80% AH.

This looks like the termination event everyone has been warning about for months and months and months on end.

$XIV totally blew up after close. The indicated value fell another $46 post close. I think this is may be a liquidation based on the prospectus.$VIX $SPY $SPX pic.twitter.com/09ruGp2s7A

— Jason Polansky (@polan13) February 5, 2018

Even if some of these VIX funds are not liquidated over the next couple of days, there will be firms carried out in body bags and you may not be made good on your trades. KNOW WHAT YOU OWN and be wary of jumping in. pic.twitter.com/RJ6oPBnrtn

— SentimenTrader (@sentimentrader) February 5, 2018

The VIX was up 100% at one point during the session – the most on record.

Recall this from Peter Tchir:

XIV terminates if the underlying index is down 80% in a day. Poof. Gone. It will pay cash at whatever residual value is left after unwind. If CS was simply hedging with the 70,000 futures contracts, that would cause immense demand for futures on what could only be described as a very nasty day (80% hasn’t happened — but these products didn’t exist). SVXY is not explicit on what it does on a large move day — I suspect, that is part of the reasons inflows into SVXY are so much larger than XIV. But, SVXY has margin agreements in place, and since it isn’t a charity, I would think that it shutters its doors at some level below down 100% (they can’t ask shareholders for more money, so the margin counterparties would shut down the trades. If the trades don’t exist, I’m not sure how the ETF can). So imagine that XIV knocks out, which triggers a VIX spike, which knocks out SVXY.

It seems incredibly unlikely, but then again AIG was ‘AAA’ and ‘super senior’ was super safe. Housing prices, on a national basis, had never declined. Lots of ‘impossible’ things seem to happen once financial engineering drives them too far.

Yes, indeed. It seems “incredibly unlikely” but by God, it looks like it just happened. I think these things are finished.

I mean, don’t say it wasn’t in the prospectus because it damn sure is:

Sensitivity of the ETNs to large changes in the market price of the underlying futures contracts Because the Inverse ETNs and 2x Long ETNs are linked to the daily performance of the applicable underlying Index and include either inverse or leveraged exposure, changes in the market price of the underlying futures will have a greater likelihood of causing such ETNs to be worth zero than if such ETNs were not linked to the inverse or leveraged return of the applicable underlying Index. In particular, any significant increase in the market price of the underlying futures on any Index Business Day will result in a significant decrease in the Closing Indicative Value and Intraday Indicative Value of the Inverse ETNs, and any significant decrease in the market price of the underlying futures on any Index Business Day will result in a significant decrease in the Closing Indicative Value and Intraday Indicative Value of the 2x Long ETNs. If the price of the underlying futures contracts increases by more than 80% in a day, it is extremely likely that the Inverse ETNs will depreciate to an Intraday Indicative Value or Closing Indicative Value equal to or less than 20% of the prior day’s Closing Indicative Value and will be subject to acceleration if we choose to exercise our right to effect an Event Acceleration of the ETNs. If the price of the underlying futures contracts decreases by more than 40% in a day, it is extremely likely that the 2x Long ETNs will depreciate to an Intraday Indicative Value or Closing Indicative Value equal to or less than 20% of the prior day’s Closing Indicative Value and will be subject to acceleration. If the price of the underlying futures contracts decreases by more than 80% in a day, it is extremely likely that the Long ETNs will depreciate to an Intraday Indicative Value or Closing Indicative Value equal to or less than 20% of the prior day’s Closing Indicative Value and will be subject to acceleration if we choose to exercise our right to effect an Event Acceleration of the ETNs.

And guess what? Even Cramer is on it. Look out everyone.

As i am understanding this the $XIV may have busted which could cause the VIX to spike to 50 which could cause a giant mechanical DECLINE tomorrow morning like we had today. Be ready …

— Jim Cramer (@jimcramer) February 5, 2018