Retail Money Picks the Wrong Time to Resume Shorting Volatility

• February 08 2018
• Luke Kawa

Lesson not learned.

Lesson not learned.

In the days after the biggest stock rout in seven years wiped out an esoteric exchange-traded note that bets on market calm, retail investors poured more than $200 million into the largest surviving exchange-traded product that does the exact same thing. Wednesday’s flows alone into the ProShares Short VIX Short-Term Futures exchange-traded fund, better known by its ticker SVXY, amounted to 32 percent of its total assets.

The timing could’ve been better. Volatility’s grip on global markets tightened Thursday, as the S&P 500 Index sank almost 2 percent and the Cboe Volatility Index soared past 30, double its level from a week ago.

SVXY is trading for $10.50, down roughly 15 percent on the day and more than 85 percent from its closing price on Friday.

The fund’s assets have rebounded to more than $427 million from a low of $72 million on Monday. That’s still a far cry from its peak of $1.7 billion at the start of February, but it signals that investors are making fresh bets that shorting volatility will pay off just days after $3 billion in value was wiped from the two most popular VIX-related exchange-traded products.

“According to the ProShares website SVXY has 64.4 Million shares outstanding. It added 28.45 million shares - YESTERDAY!” writes Peter Tchir, head of macro strategy at Academy Securities Inc.

Bloomberg Intelligence ETF analyst Eric Balchunas noted that activity in the fund normalized to such an extent that it matched the average level of dollars traded over the past year. When Balchunas pointed that out on Twitter, here’s the response he got from a trader: