Vix fall triggers ETN de-risking as 'short vol' models go 'completely toast'

Pablo Conde, 06 February 2018

The "grey swan" we all have spoken about for years - that being the absurd "tail wagging the dog" potential of Vix ETN market structure (inverse and leveraged products) and the massive growth in "negative convexity" / "vol target" / "vol rebalancing" strategies to either generate extra income or "systematically allocate risk" (looks good in the prospectus, right?!) - finally "broke" the volatility market, and has now bled-through to the "underlying" spot equities market... as the short vol trade went "lights out", Charlie McElligott, who joined Nomura as a managing director of cross-asset strategy last week, wrote in a blog post today (Nomura: More selling to come), following a 75% fall of the CBOE Volatility Index futures curve, which, in turn, has hit a number of Vix-linked ETNs.

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