As TVIX, the double-levered long VIX ETF unleashed in Nov 2010, decays to record low prices…
An unusual (and almost unprecedented) event has occurred. Just as we saw in Gold ETFs, and Oil ETFs, TVIX Shares Outstanding have exploded by a stunning 225% in the last 4 weeks… [the last 3 times TVIX has undeergone such an epic surge in demand marked a major turning point and led a violent surge in VIX]
with the largest inflows (bearish bets) on record in the last week…
The entire VIX complex is perturbed as the huge bearish TVIX flows contrast with the complacency of the steepest term structure since Nov 2014 (post Bullard-Bounce)…
And net speculative positioning at its shortest VIX (most bullish) in 2016…
We saw this kind of manic ETF creation recently in Blackrock’s Gold ETF, which forced them to halt creation – for lack of supply…
In the case of the current scramble for TVIX units, forced buying of VIX futures (which explains the steepness of the futures curve) suggests VIX buying pressure is building…
As Barron’s adds, volatility is back, but too few investors even know it.
Most are too focused on the CBOE Volatility Index’s extraordinary collapse in recent weeks to 15 from about 28. When the VIX is low, as it is now, it tends to be interpreted as a green light to buy stocks. . .or a sign of investor complacency.
Not enough people realize that the VIX is just a 30-day snapshot of expected returns for the Standard & Poor’s 500 index. A more meaningful, if esoteric, indicator is the VIX futures curve, which offers a long-term view of the stock market’s perceived risk.
The curve has lately been flat, indicating little risk to owning stocks between now and more distant months. But the futures curve is now “upward sloping,” as if sophisticated investors have suddenly regained visibility into what was an opaque stock market.
Nothing bores people more than nerdy derivatives measures, including VIX futures curves. But you should add this volatility gauge to your arsenal of indicators if you trade options or want to be a smarter stock investor.
