Monday, February 5, 2018

An ETF Appears to Have Blown Up; Credit Suisse May Have Lost Hundreds of Million

And yet another trade's algorithm is exposed.

The current stock market break is causing a massive spike in volatility. You do not want to be short volatility.  Some Credit Suisse quant came up with a trade late last year to go short $500 million in volatility. Ouch.

Adam Button has the blow-by-blow at Forexlive:
An ETF betting against volatility may have left Credit Suisse with a more than $500 million loss.

It increasingly looks like the XIV ETF has blown up. It survived regular trading with about a 15% loss and a close at $99 but it appears it was liquidated afterwards, or some very funny business is going on.

It's trading at around $15 after hours and a notice on the EFTs website said the net-asset value is just $4.22. If that's all correct, it's basically worthless. It's a similar story in SVXY, which is a similar ETF from ProShares.

In the case of XIV, who has the losses? Here is a clue. Numbers published Sept 30 showed Credit Suisse holding nearly 5 million of the shares itself. Those would have been worth $550 million at the open and about $20 million now -- a net loss of $530 million for the Swiss bank.

The company reported just $244 million and $303 million in profits in the past two quarters -- so it would essentially wipe out a half-year of gains. And then there are the lawsuits and potential fines from regulators.
Robert Wenzel is Editor & Publisher of and Target Liberty. He also writes EPJ Daily Alert and is author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics and on LinkedIn. His youtube series is here: Robert Wenzel Talks Economics. The Robert Wenzel podcast is on  iphone and stitcher.

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