The Psychedelic Swan Moment And Retail’s Volatility Addiction

The Psychedelic Swan Moment And Retail’s Volatility Addiction

Well in light of today's midday massacre for retail investors who apparently learned very little (if anything) from Monday's wipeout of XIV, this is probably just as good a time as any to show you a couple more amazing charts illustrating what will undoubtedly go down as one of the more dramatic speculative blowups in history (if for no other reason than the sheer blatant stupidity inherent in the whole thing and the fact that the New York Times Target manager story put a face and a name to the
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3 thoughts on “The Psychedelic Swan Moment And Retail’s Volatility Addiction

  1. Why is government intervention your answer?

    Put your hand on the stove, you learn. And those who don’t, well so sorry for them, but you don’t outlaw the stove.

  2. Heisenberg,
    Have you seen write up by Clark Landis on SA about Monday?
    I think credible his theory that much of the difficulty came from liquidity providers front-running a locked-in buying requirements by vol etn and etf s. So really a transfer of about $1B of retail vol buyers and sellers money to these front runners. That the trouble was not only from S&P market change but from street traders taking advantage of the structure of vol markets and the mandated rebalancing mechanisms of XIV, SVXY, etc. This I think is an important perspective of what happened. Nothing illegal, but shows that part of what was not anticipated by retail investors was the risk inherent in the positioning and motivations of liquidity providers. As we’ve seen, contango to retail is like crack to an addict and being explicit about and accounting in various ways for this front-running waiting-to-happen woud be useful. Also, calling out this aspect of what happened may put some expectation that SVXY for example put in allowances in their procedures such that they may risk uncoupling their efforts to unthinkingly follow index-related returns when market dislocations occur. That is they can not only halt trading in shares but delay rebalancing until. Is this not workable, would it not have worked monday? If they don’t change how they do things than this will happen again and again.

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