After a day of conference calls with investors, Goldman's newly-hired quant Rocky Fishman has assembled the most frequently asked questions that are relevant for trading dynamics in the VIX and equities in the coming days.
Here is the result: Goldman's Q&A on the Trading Dynamics of ETPs
1. Do I have to worry about VIX ETPs driving another similar volatility spike?
Not for now, and not likely anytime soon. The large short VIX products were the primary driver of Monday afternoon's late-day acceleration in the VIX, and with them diminished ($300mm AUM now vs $3.9bln peak AUM), the quantity of VIX futures ETP issuers would have to buy on a further volatility spike is diminished as well. Levered long ETPs remain sizable ($1.1bln AUM), but per unit of VIX futures exposure, they trade less on a volatility spike than inverse products would (filling the gap between long futures that have risen and a fund NAV that has risen faster requires fewer units of futures than between a NAV and futures position that are moving in opposite directions). The higher level of VIX futures also makes an N-point move a lower percentage move than it would be with lower VIX futures prices.
2. What’s the impact of the XIV (and Japan-listed 2049) redemption? What’s the impact of the SVXY continuing to trade?
The previously sizable short VIX ETPs no longer have a significant impact on the VIX futures market because Monday's sell-off pushed their AUM down so much that their VIX futures holdings would be immaterial to the broad market (the SVXY is short less than 1% of VIX futures open interest), regardless of whether or not they continued trading.
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