How small, exotic volatility trades had out-sized influence on the market's free fall [CNBC]
ProShares Equities for Rising Rates ETF (EQRR)
US:NASDAQ Investor Relations:
proshares.com/funds/eqrr.html
Company Research
Source: CNBC
Did volatility funds hurt the market? At the very least, they made a bad day worse. The VelocityShares Daily Inverse VIX Short-Term ETN was an inverse bet on volatility, in this case, a basket of volatility futures (the two front-month VIX futures contracts). It was set up so that if volatility fell, you would make money. For example, if volatility dropped 5 percent in one day, you would be up 5 percent. But if volatility rose 5 percent in one day, you would be down 5 percent. This trade made a lot of money, until it all went bad Monday afternoon. What happened gives some insight into the idea that a very small amount of money (two such inverse volatility funds in question, the XIV and a ProShares fund, the SVXY , had a combined $4 billion) can have an out-sized influence on the markets. It's an important issue, one that will be pondered by the investors in the funds and one that will certainly be scrutinized by regulators. I've spent the last day talking to trad
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