Traders are betting big that last week’s market mayhem was just a blip
Demand for an ETF that lets investors bet on market calm has gone haywire.
When stocks tumbled last week, traders bought the dip.
And when volatility spiked, they sold the rip.
Shares outstanding in the -1x Short VIX Futures ETF (ticker SVIX) surged from less than 7 million to above 21 million in a matter of days.
SVIX benefits from calm conditions in the stock market. Specifically, it bets that the prices of the first and second month VIX futures contracts will fall. VIX futures are linked to the VIX Index, a gauge of the S&P 500’s implied volatility over the coming month based on options prices. The measure, also commonly known as Wall Street’s “fear gauge,” rose to its highest level outside of the financial crisis or COVID on August 5.
The explosion in shares outstanding reflects investors piling into the short volatility trade, a wager that the carnage of early August would subside rather than mark the onset of a new, persistently turbulent regime. It’s ticked down in recent days, a sign that there might be some profit-taking on what’s been an excellent trade.
(My colleague Jack Raines got deeper into the ETF shares creation and redemption process here.)
The fund’s assets also tripled from less than $200 million on August 5 to above $600 million as of Wednesday’s close, fueled by the enhanced appetite to short volatility (more money in) and the quick decline in VIX futures (good performance) following the sudden jump.
SVIX, which launched in March 2022, filled a hole in the investment landscape left by XIV, an exchange-traded product that left a gap in markets when it imploded on Feb 5, 2018 and turbocharged a spike in volatility.
