6 February 2018: Volatility is back (with a vengeance)

To say stock markets in the US (and around the globe) had a bad day yesterday, is an understatement. Many major indices recorded the worst trading day in more than three years. Indices worldwide closed with losses between 4% and 6%. As a result, volatility continued the rise it had experienced since the end of January.
Many analysts had expected this correction of the markets because of the uninterrupted rise of stock prices since the election of Donald Trump. What is surprising, however, is the degree to which volatility has been rising. The VIX, the so-called fear index, went up 116% yesterday and is up more than 230% since the end of January. These are unprecedented levels and volatility looks like to have become some sort of self-propelled force. Especially inverse volatility products such as XIV ETNs and SVXY ETFs, which speculate on low levels of volatility, were hit hard yesterday. In after-hours trading, they fell even more sharply than they had done during regular trading hours. In fact, they lost more than 80% of their value intraday. Credit Suisse, issuer of XIV ETNs, declared this event to be an acceleration event. It will stop selling XIV ETNs by 21 February 2018. Holders of XIV ETNs will receive a cash payment per ETN from Credit Suisse in an amount equal to the closing indicative value of XIV three days before. Until that moment, we will probably be forced to use the latest price of XIV ETNs in the calculation of the results of our models. Expect the closing indicative value of XIV that will be used for the cash payment to be (much) lower than the current value.
Ironically enough, volatility eased in the first hours of this trading day and the VIX lost as much as 40% of its value in the process.

white-chapel-logo-smallUS stock markets made a wild ride yesterday. They opened in the red, then recovered around lunchtime, before sliding again throughout the afternoon with the Dow losing as much as 1,597 points by mid-afternoon. The Dow closed out the session 1,175 points lower, or 4.6%. The NASDAQ (-3.8%) and the S&P 500 (-4.1%) also recorded strong losses. Volatility spiked: the VIX rose more than 100%, its biggest single-day gain in history. UVXY ETFs rose sharply, adding more than 66%. XIV ETNs retreated 14%.
All of our models were on the wrong side of the trade. Danny Daredevil and Adventurous Anny both slipped into negative territory. Danny’s RSS dropped to -11% and Anny saw her RSS close at -5%. Solid Suzy and Lazy Larry saw a continuation of their fall and their RSS dropped to 48%.
None of our models gave a trading signal at the end of yesterday’s session.

Model Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil XIV 1 January 2016

-11.27%

-13.00%

-13.00%

-6%

Adventurous Anny XIV 6 March 2017

-5.32%

-22.96%

-22.96%

-6%

Solid Suzy XIV 6 March 2017

48.47%

-26.36%

-26.36%

53%

Lazy Larry
XIV 6 March 2017

48.47%

-26.36%

-26.36%

53%

RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return

 

The Chapel Family – Episode 19

Road traffic has come to a dead stop now. Danny, Anny, Suzy and Larry sit staring in silence through the car windows. There is not much to see, as their view forward is limited by the back side of a huge dark Mack truck. Danny looks at his watch. Anny switches the radio channel to another music station.

[..] did surrender
Oh yeah, and I have met my destiny in quite a similar way
The history book on the shelf
Is always repeating itself…