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Presenting The VXV Widowmaker... On Roids

Tyler Durden's picture




 

When we first presented the TVIX, or the double levered short-term VIX ETF, as well a few more insane ETFs just created by Standard & Poor's Financial Services LLC (yes, S&P) less than two shorts months ago, we summarized this development as follows: "Ever feel like this market just does not provide enough unique and
suicidal ways for you to lose your hard stolen money within nanoseconds
of trade execution? Never fear - here comes the TVIX, a levered third derivative bet on volatility: simply said, the TVIX will be the world's first double leveraged VIX ETF... Why not just call these what they are: a novel way (brought to you via
the synthetic CDO legacy product known as ETFs) to lose money with a
99.999% guarantee. As always, we wonder why anyone would trade this
product, when, with much better odds, one would at least get comped in
Vegas..." Well, we were right. The chart below shows what happens when one believes there is any vol, let alone double leveraged volatility left in a centrally planned, perpetually melting up stock market. The TVIX has plunged from $110 to just over $42... in a little over a month.

To those who actually did buy this TVIX, instead of taking our advice and going long Vegas, and blowing money in a far more wholesome and satisfactory way, our condolences.

 

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Wed, 01/19/2011 - 11:46 | 887061 kjmck
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Leonard Cohen sums it up here

http://www.youtube.com/watch?v=q63plx5NClI

 

 

 

Wed, 01/19/2011 - 11:50 | 887073 AR
AR's picture

We thought ZH readers may enjoy two of our favorite Wall Street sayings:

(1)  Wall Street - The most "highly regulated, legally corrupt" industry in the World.  and...

(2)  Wall Street - The greatest "selling machine" in the history of mankind. 

Wed, 01/19/2011 - 12:03 | 887109 Bearster
Bearster's picture

Regulated and corrupt are not opposites. They go together like drugs and suicide, television and ADD, or Ferraris and hand jobs from women you don't even know.

Wed, 01/19/2011 - 12:15 | 887150 Sudden Debt
Sudden Debt's picture

buzzy day he?

Could you wave to the CNBC camera crew with a printed logo of ZH? :)

 

Wed, 01/19/2011 - 11:53 | 887075 SheepDog-One
SheepDog-One's picture

Total proof of complete insano markets that there even exists a 'double inverse levered 3x-12th power ultra short VIX ETF'....WTF?? LULZ.

Wed, 01/19/2011 - 12:00 | 887101 SwingForce
SwingForce's picture

Do they trade weekly options yet?

Wed, 01/19/2011 - 12:02 | 887106 Sudden Debt
Sudden Debt's picture

If you like stuff like that, in Las Vegas they have a Lottery EVERY 10 MINUTES!

 

Wed, 01/19/2011 - 11:51 | 887077 AccreditedEYE
AccreditedEYE's picture

And the chart STILL looks horrendous. When does short vol become too easy? never?

Wed, 01/19/2011 - 11:53 | 887080 Sudden Debt
Sudden Debt's picture

So this is a double bottom buy recommendation?

LET'S ALL TRANSFER THE KIDS COLLEGE FUNDS AND PLAY!!

 

and if everything goes bad the kids can always take on a student loan for the next 50 year after graduation...

Wed, 01/19/2011 - 11:54 | 887082 topcallingtroll
topcallingtroll's picture

Tvix as a hedging instrument is just fine thank you. Just a little dab will do ya! These double and triple etfs make for cheap insurance but they are widowmakers if you use them to speculate.

Wed, 01/19/2011 - 11:54 | 887083 michael.suede
michael.suede's picture

LOL

I love Zero Hedge articles.

I don't even know what a double levered VIX EFT is, but this article is hilarious.

Praise Mao and may the Bernanke devalue your life savings.

 

Wed, 01/19/2011 - 11:54 | 887084 Sniper
Sniper's picture

I won't trade this. I am going to wait for Direxion to make a 3X leveraged ETF based on the movement of TVIX.

Wed, 01/19/2011 - 11:57 | 887090 Tyler Durden
Tyler Durden's picture

You are probably waiting until they allow options trading in the 5th vol derivative ETF

Wed, 01/19/2011 - 11:59 | 887098 SheepDog-One
SheepDog-One's picture

Im waiting for the inverse options on those.

Wed, 01/19/2011 - 12:14 | 887147 DonnieD
DonnieD's picture

I'm waiting on an inverse 3x ETF on Paul Krugman

Wed, 01/19/2011 - 12:05 | 887115 Hephasteus
Hephasteus's picture

No I'm waiting for "class" and speaker fees from the scamway, winning big in the 5th vol deritive ETF market. Available for streaming in the cloud with no traceable evidence.

Wed, 01/19/2011 - 12:32 | 887210 Sniper
Sniper's picture

Sure. Just as soon as options become marginable and I can get 100 to 1.

Wed, 01/19/2011 - 11:59 | 887100 Hephasteus
Hephasteus's picture

The war for electronic isolation from circuitry madness.

http://www.youtube.com/watch?v=Iw3G80bplTg

Wed, 01/19/2011 - 11:56 | 887088 hugovanderbubble
hugovanderbubble's picture

Theta plays...in Ibiza¡¡¡¡¡¡¡¡

Wed, 01/19/2011 - 11:57 | 887091 Beatscape
Beatscape's picture

A perfect short.  Are shares available for shorting?

Wed, 01/19/2011 - 12:08 | 887128 Sudden Debt
Sudden Debt's picture

Only when there's a 99.99% certainty that it will go up :)

 

Yesterday I was looking for BAC put warrants. Only 1 available and about 50 call warrants for every date.

It was pretty clear that I should go short so to speak :)

Wed, 01/19/2011 - 12:09 | 887132 max2205
max2205's picture

The short is TVIZ

Wed, 01/19/2011 - 12:35 | 887092 Mercury
Mercury's picture

On that original post http://www.zerohedge.com/article/presenting-tvix-double-leveraged-invers... I proposed a paper trade to short the double long VIX ETF and short the double inverse VIX ETF betting that would make money by January.  Well it turns out that there actually isn't a double inverse VIX ETF (I don't think) and using 2x leverage to sell short the XIV doesn't take advantage of the inherent evil mechanics of having leverage inside the ETF/ETN itself.

The XIV performance (in this period - since about the end of November) is just about the mirror image of the TVIX even though the TVIX is 2x leveraged and the XIV uses no leverage.

So the motivating strategy - that leveraged ETFs tend to go down - still seems solid, at least here. The better tactic would have been shorting the doomed (and leveraged) TVIX while plowing some/all of the short sale procedes into the inverse (but not leveraged) XIV. Now that would have been a trade.

 

Wed, 01/19/2011 - 12:02 | 887096 Widowmaker
Widowmaker's picture

I think it is time to retire my handle...

Wed, 01/19/2011 - 12:14 | 887144 Beatscape
Beatscape's picture

Politically incorrect to say the least.  If you worked for NPR, you would have been fired already.

Wed, 01/19/2011 - 12:01 | 887102 cocoablini
cocoablini's picture

I tried FAZ in a small batch last month, seeing that it was absurdly low considering the fact that banks were losing lawsuits, stuck with toxics and overall ripe to be exposed to Europe.
Even when BA lost a lawsuit again, FAZ went up like 8 cents. And continues to drop to zero.
Obviously, these ETFS do not correspond to anything they are supposed to and basically leak money over time until they are recharged or liquidated.
ETFs are a great way for big banks who insider trade to make instant money in short term trades. They also can extract( steal) money from non-insiders in a New York millisecond. Great video posted here on how both levered up and down ETFs just lose money. In fact the only way to make money on a levered ETF is to go long on a short position. Over time it will go strAight to zero or get closed.
So, why bother, thats the game for the big boy pickpockets. I'm going long gold and junior miners as the classic countercyclical asset classes in a depression. Its been working fine and I don't even trade anymore as all traders have been forced out due to manipulation, disinterest or flat out getting mugged

Wed, 01/19/2011 - 12:24 | 887176 Sour Grapes
Sour Grapes's picture

Actually, FAZ does exactly what it is supposed to do.  It just doesn't do what an average person thinks it would do.

First FAZ is tied to the Russell 1000 Financial Services Index and BAC is only a small part of the index.

Second, FAZ's goal is to every day generate 3X the daily result of the index.  You need to understand the math of using leverage.  3X the result of an index every day doesn't equal 3X the index over a longer period.  If there is much volatility, it means less, and if there is a lot of volatility, a lot less.

Wed, 01/19/2011 - 13:55 | 887546 SwingForce
SwingForce's picture

When they get close to ZERO they do a "TILPS" (reverse SPLIT) so it can get closer to zero.

Wed, 01/19/2011 - 12:04 | 887107 topcallingtroll
topcallingtroll's picture

Ive thought about going all out on double etfs that mirror my basic portfolio but it appears sadly there is no free lunch and even though modeled volatility is about the same the geometric mean return is the same distribution. I would have thought a well diversified portfolio might get some extra juice by substituting double etfs. Can anyone explain that? Maybe my math is wrong but i.doubt it....a puzzle for the quants.

Wed, 01/19/2011 - 12:18 | 887158 Chuck Bone
Chuck Bone's picture

Leveraged ETFs use swaps and other derivatives to achieve the leverage they seek. You'll find they often don't follow the index or asset in the long term because they aim to double/triple the daily movements, not the monthly or yearly movements. Combine that with a higher expense ratio due to the more complicated and active management, and you have your answer. These ETFs can be useful to compound large daily losses or gains in the underlying index/asset they follow, but don't expect them to track the index or whatever over the long term.

Wed, 01/19/2011 - 12:03 | 887110 Ragnarok
Wed, 01/19/2011 - 12:06 | 887120 SheepDog-One
SheepDog-One's picture

No one wants FRN's.

Wed, 01/19/2011 - 12:32 | 887205 AccreditedEYE
AccreditedEYE's picture

Nice... Keep up the great work Benny!! Taking away the very last thing this country had going for it.

Wed, 01/19/2011 - 12:07 | 887126 max2205
max2205's picture

Spy VIX pair trade is a bubble. The reverse trade will be nice. Could be soon. 5% on the reverse today

http://stockcharts.com/h-sc/ui?s=$SPX:VXX&p=D&yr=1&mn=6&dy=0&id=p96099212375&listNum=11&a=203739129

Wed, 01/19/2011 - 12:10 | 887137 Hollow_Point
Hollow_Point's picture

I'm waiting for TD's call on the SP going green at the close.

Wed, 01/19/2011 - 12:09 | 887131 DonnieD
DonnieD's picture

If somebody created an ETF of all levered ETF's I'd bet it would never have an up day.

Wed, 01/19/2011 - 12:16 | 887152 Buttcathead
Buttcathead's picture

Sounds like a short squeeze play now.  Elvis has left the building...  thank you, thank you very much

Wed, 01/19/2011 - 12:27 | 887186 carbonmutant
carbonmutant's picture

With the VIX at 16.50 nobody cares...

Wed, 01/19/2011 - 13:16 | 887414 TradingJoe
TradingJoe's picture

This TVIX is nothing but a short term(1-3days) play, who holds it for longer is TOAST! Made almost 5 bucks on that crap in 2 days!!! Thats how you do it! Get IN and then GET OUT!

Wed, 01/19/2011 - 14:36 | 887691 EventHorizon
EventHorizon's picture

I'm waiting for a triple inverse ETF on all Goldman Conviction Buys.

Wed, 01/19/2011 - 15:16 | 887810 Charlie_Day
Charlie_Day's picture

Just brought up a chart of the TVIX vs it's "inverse" TVIZ. One's down 30%, the other 60%. Now to find shares to "borrow".

Wed, 01/19/2011 - 21:54 | 888992 SwingForce
SwingForce's picture

How does this work? $VIX is up +9.07% and TVIX is up +10.81% thats not 2x. That's WTF?

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