Few things, the share creation process doesn’t make this as reflexive, the APs soaking to move it to the value kinda stops that dynamic + APs aren’t forced to keep that matched book the same way MMs are. It’s a completely different dynamic.
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If you don't mind explaining, I thought the XIV blowup of 2018 was because weight of retail buying (at its peak XIV and SVXY were 4b in AUM) had caused the beta of the VIX to morph relative to the SPX. Hence a 4% drop in S&P caused a 20x spike. Why wouldn't the reverse be true?
The XIV blowup was self-reinforcing. Vol had been compressed by huge interest in vol selling (high AUM in inverse VIX ETNs) so a small absolute increase in VIX represented a large % in crease, which meant a large loss for XIV. It was then compounded because XIV was looking at
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a NAV which was down by half but a position which was up by half in value, they therefore had to buy back many times the ADV of VIX futures to maintain their -1 leverage — this massive buying is what caused the VIX to rocket even further and what caused the ETN to blow up.
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So it’s a combination of massive AUM and a leverage factor that means for every 1% increase in VIX futs they had to buy back 2% of their position. With UVXY the AUM is smaller plus the 1.5 leverage factor means they only buy 0.75% of their position for a 1% increase in VIX futs
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On top of that as
@ksidiii explained, the vol drag acted to compound the AUM in short VIX products like XIV until things got to the pint they could snap, whereas it actually reduces the AUM of UVXY on average, so harder for UVXY to get to AUM levels where it makes a difference. - Show replies
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