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Alternative Market Briefing

The short-vol trade is dead, long live short-vol

Friday, February 09, 2018

Bailey McCann, Opalesque New York:

The correction is here - or is it? Monday's spike in the VIX took two scalps - $XIV and Nomura's Next Notes S&P 500 VIX Short-Term Futures Inverse Daily Excess Return Index ETN. There was one survivor - ProShare's inverse volatility ETF $SVXY and it's already bounced back.

"I think the market has spoken on this. Everyone knows what's up with these products now, but if you look at the asset flows this week $SVXY could end up Forrest Gumping its way back to where it was before Monday," Scott Billington, Co-Founder of Covenant Capital Management tells Opalesque. And, the numbers bear him out. $SVXY started 2018 with approximately $770 million of AUM, but when the dust settled after the VIX spiked on Monday, the ETF had just $97.3 million left. Still, investors haven't abandoned the short volatility trade just yet. Asset flows into $SVXY have rebounded and by market close on Tuesday $SVXY was back up to $409 million. By Wednesday? $766 million.

Billington isn't surprised to see investors come back. "There's obviously market demand for being able to take both sides of the VIX," he says, adding that the criticism of volatility products may be a bit overblown. "Unless someone was just outright lying to investors when they sold this product, the possibility that it would go to zero is outlined in the prospectus. If you do the math on how these things work it should be clear to you that they were going to g......................

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