Volatility Spike Triggers Inverse ETF (XIV) Closure

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"The unexpected level of volatility has impaired the trading of the underlying derivatives used by many VIX-related exchange traded products that seek to provide exposure to the S&P 500 VIX Short-Term Futures".

The risks, in hindsight, were clear enough even before the Dow Jones industrial average plummeted almost 1,600 points on Monday, snapped back, and then took a wild bungee jump of almost 1,200 points the next day. In the aftermath of an unexpected volatility explosion, Credit Suisse is moving to terminate the VelocityShares Daily Inverse VIX Short-Term ETN (NYSEArca: XIV).

The blow-up was the culmination of a long-running and wildly popular short volatility trade that was one of 2017's most profitable. Credit Suisse, the market-maker for the XIVs, remained hedged in the products in the intervening years, had held them on behalf of clients, and hadn't housed them on its books, according to a person familiar with the matter. Opera Trading Capital owned approximately 0.09% of Credit Suisse AG - VelocityShares Daily Inverse VIX Short Term ETN worth $1,356,000 as of its most recent SEC filing.

The XIV effectively bets against the widely-followed VIX volatility index, which gauges market fluctuation. The RSI is computed based on the speed and direction of a stock's price movement. It called the investments unsuitable for numerous individual investors that Wells Fargo had sold them to. "Imagine you are a trader, it's 2:30 p.m. and VIX futures are up about 3 points - you know what is going to happen at the close".

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XIV wasn't the only exchange-traded product hammered by Monday's VIX spike. On the other hand, a reading of -100 would imply that the stock is oversold and possibly set for a rally.

A key thing about the Vix is that the volatility that the index predicts tends to be worse than actual volatility. In other words, the ratio reveals how effective the firm is at turning shareholder investment into company profits.

Taking a deeper look into the technical levels of Benakat Integra Tbk (BIPI.JK), we can see that the Williams Percent Range or 14 day Williams %R now sits at -91.30.

"Many view the [recent] downturn as a necessity to the runaway equity markets and see it as an opportunity for investors to reinvest at more manageable levels", CMC Markets analyst Oriano Lizza said.

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To be sure, the seeds for a pull-back had been sown well ahead of 3 p.m. on Monday. We don't have a new financial crisis (yet), but we do have the steepest fall in Wall Street stocks in six years and a newly popularized acronym.

But even as 2018 kicked off with soaring stocks and subdued volatility, signs of complacency in short-vol land had cropped up.

Two exchange-traded products created to return the inverse of the VIX exploded at the close of futures trading on Monday, seeing their combined value shrink from $3 billion to $150 million, according to estimates from Macro Risk Advisors.

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