2/7/2018 Here Is What Was Behind The "Largest VIX Buy Order In History" | Zero Hedge

Here Is What Was Behind The "Largest VIX Buy Order In History"

by Tyler Durden
Tue, 02/06/2018 - 15:23

Less than a month ago, Goldman Sachs presciently published a note research report "VIX ETPs are now net short vega - should we worry"...

.... which as the title suggested showed that the net position of VIX ETPs has become short over the past few weeks, for only the second time in their eight year history.

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This odd finding - namely that the VIX ETPs had shifted their traditional vol bias from long to short - prompted the Goldman strategist to ask glibly "Should we
worry?"
Less than a month later we have the answer: Yes, Goldman, you should worry, because the historic short squeeze that took place overnight in VIX, which sent it over
100% higher - the biggest jump in history - was precisely a result of this Goldman observation, namely that ETPs were now aggressively shorting vol.

Here is what happened - as Morgan Stanley explained overnight - following this first ever shift by ETPs to net short vega, a move that in retrospect will prove to be
suicidal for the entire industry, which now faces one giant termination event.

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In short, "the VIX market saw the biggest net buying pressure on record." According to Morgan Stanley calculations, ETPs had to buy 282,000 VIX futures to
rebalance their short gamma: "this was the largest VIX buy in history, dwarfing Friday’s previous record of 78,000." Dealers hedging their short gamma exposures
likely contributed to VIX futures demand as well.

And since most of the rally in VIX futures happened after the 4:00 pm cash close, there was no time for investors or the issuers of the VIX ETPs to react.

It gets better: according to Morgan Stanley this move was "incredible" particularly because VIX and VIX futures were already elevated – and the amount of volatility to
buy exceeded the bank's already aggressive estimates (below shows what QDS estimated coming into Monday) and speaks to the size of the short vol exposures in the
market:

While this explains the theory, the question is what happens in practice next: will the inverse ETPs - like XIV - continue to exist today? This is up for debate at time of
this writing, but for the broader market the implication is clear: the inverse ETPs have effectively delevered down to zero, going from short 230,000 VIX futures
to short just 4,000.
The good news from the effective wipeout of a major part of the vol-selling market is that "this means there is much less risk going forward of further vol to buy
from rebalancing of these products."

The bad news: holders of the inverse ETPs lost $3.4bn as the products went nearly bankrupt and this removes a steady source of volatility supply over the last
year.

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Comments

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opt out • Feb 6, 2018 9:02 AM Permalink

131
2 Truthfully, I don’t really understand any of this - 

but it IS interesting to watch...

96 J S Bach  opt out • Feb 6, 2018 9:05 AM Permalink

3 It is convoluted, Opt out.  But, I too, love seeing the look of terror, avarice and panic on the faces of these useless fat "traders".  What do they
actually produce?  They push paper around in a fog of greed.  What kind of life is that anyway?

26 waterwitch  J S Bach • Feb 6, 2018 9:08 AM Permalink

0 Black tulip Tuesday.

24 gatorengineer  waterwitch • Feb 6, 2018 9:08 AM Permalink

0 They got to be scared as shit to turn this thing on today....

21 Ghost of PartysOver  gatorengineer • Feb 6, 2018 9:16 AM Permalink

4 All the chaos and yet the ES has not even retraced 38% of the move up since The Don was elected.   To me this has the sweet stench of a
buying opportunity over the next few days.  I am just waiting to see when the big houses start to move in.

PS: Do not get caught up in the media doom and gloom reports as they will do and say anything negative if it will adversely impact Trump. 
Hopefully you all ready understand this.
PSS: What in the economy has change in the 7 days.  Employment? Corp Profits?  GDP? 

7 gatorengineer  Ghost of PartysOver • Feb 6, 2018 9:36 AM Permalink

1 One of the great tools they used to move this bitch VIX was just broken and shoved up their ass.....  Not sure what the full implications of it
are.....  

and you are right, nothing has changed in 7 days, its all still shite......  now the market has a chance to catch down to mainstreet.

0 BaBaBouy  gatorengineer • Feb 6, 2018 9:44 AM Permalink

1 LOL, as Predicted ... Donaldo Slams Paper GOLD ... DOW UP ...! ALL IS Well ...

3 Save_America1st  BaBaBouy • Feb 6, 2018 9:50 AM Permalink

0 even the eTrade baby got his face ripped off after what happened yesterday:

 
https://www.youtube.com/watch?v=AYrpROr9Gmk

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4 nmewn  Save_America1st • Feb 6, 2018 10:06 AM Permalink

0 Right about now all the little retail shorts are on their third pair of underwear ;-)

2 Laowei Gweilo  nmewn • Feb 6, 2018 10:27 AM Permalink

0 the case for 24/7 markets and a ban of trading speeds IMO

crash cuz the FED? cool. 

crash cuz the fuckery banksters can do after hours or with their algos? not so much.

4 fallst  Laowei Gweilo • Feb 6, 2018 10:43 AM Permalink

0 Yes either 24/7 or nothing outside of market trading hours.

1 Bud Dry  fallst • Feb 6, 2018 11:22 AM Permalink

1 So...  is this like the "Tether moment" for the VIX?

0 Bondo  fallst • Feb 6, 2018 2:35 PM Permalink

0 thats right. the big boys play 24/7, but only let us in for 8 hrs 5x week.

we get 40, they get 168. 

0 W270  nmewn • Feb 6, 2018 10:59 AM Permalink

0 I sold my last two pairs so I could short my shorts some more.

0 lloll  W270 • Feb 6, 2018 12:19 PM Permalink

1 "holders of the inverse ETPs lost $3.4bn"

Nope. Some entity stole that money. That's what ALWAYS HAPPEN when there's a mini or major crash.

2 Ahmeexnal  nmewn • Feb 6, 2018 11:07 AM Permalink

0 George Soros is the VIX buyer.

1 somethingisrotten  nmewn • Feb 6, 2018 12:04 PM Permalink

0 A bit of news for you - the only retail shorts left after the many years of manipulative thrashing are the bitcoin "investors" who thought they
are millionaires and had the alternative to the "market".

4 caconhma  gatorengineer • Feb 6, 2018 10:20 AM Permalink

1 FED and the Zio-Banking Mafia are playing their favorite game of destroying America and livelihood of their people. The money they are
stealing is from pension funds and insurance companies. So, be ready to lose your pension and seeing your insurance premium going sky-
high.

2 Eatabanker  caconhma • Feb 6, 2018 11:10 AM Permalink

5 "The money they are stealing....."

They aren't stealing, they're simply fleecing greedy nitwits. 

29 Buckaroo Banzai  Ghost of PartysOver • Feb 6, 2018 9:56 AM Permalink

1 "PSS: What in the economy has change in the 7 days.  Employment? Corp Profits?  GDP?"

Nothing has changed, it's still the same stupid piece of shit it has been for the last decade, but years and years of leveraged corporate stock
buybacks combined with shenanigans like the short-VIX trade have kept the stock market going up despite the fact that the economy is
dubious at best, an outright fraud at worst.

5 El Hosel  Buckaroo Banzai • Feb 6, 2018 10:48 AM Permalink

0 Maybe Folks forget the "Market" has not really been connected to the economy for a while, so nothing has changed. Why was the DOw up
8,000 on the Trump trade that has not had time to alter the economy?
I guess it "used to be the Economy stupid", now it is the Fed led speculative flow silly.

1 Quantify  El Hosel • Feb 6, 2018 3:24 PM Permalink

0 There are many good companies out there who make a profit. The fact that a market is controlled by a fed that lends money to a government
that can't pay it back can control the real market value of those companies is what is mind altering for myself.

2 Antifaschistische  Ghost of PartysOver • Feb 6, 2018 12:34 PM Permalink

0 That's your rationale?  what has changed?  that's a little bit dangerous.  What has changed in the last 10 years?  what has changed since the
Dow was at 10k?  Are you assuming the Dow was "fairly valued" when it was at 26k and since nothing fundamental has changed it should
return to 26k?  What if "fair value" is at 17k?  What if fair value is at 8K?  Does anyone really know what "fair value" is any more?  Does anyone
care?

buying opportunity?   certainly possible...we'd be a fool to bet against a Dow 30k possibility.   or bitcoin at 20k.

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have fun...

1 FredFlintstone  Antifaschistische • Feb 6, 2018 12:48 PM Permalink

0 10 years ago I thought the Dow at 7,000 would have been priced right.

0 Joomanji64  Ghost of PartysOver • Feb 6, 2018 5:12 PM Permalink

0 PSS: What in the economy has change in the 7 days.  Employment? Corp Profits?  GDP? 

1) The economy has nothing to do with the "market"

2) The FED has accelerated it's balance sheet unwinding

3) The Fall Goy's first day on the job was yesterday

3 overbet  waterwitch • Feb 6, 2018 9:15 AM Permalink

0 turn around tuesday

3 overbet  overbet • Feb 6, 2018 9:42 AM Permalink

1 couldnt pray for a better set up to btfd

1 El Hosel  overbet • Feb 6, 2018 10:56 AM Permalink

0 This might be "a" dip and not "the" dip but you might still enjoy the rip.

1 overbet  El Hosel • Feb 6, 2018 11:10 AM Permalink

0 Based on past setups, buying this open was a no brainer. If you trade and didnt know to buy this open then you should probably look for
something else to do.

If you want to proceed as if every dip is the big one then youre going to lose. Buying this open every time Ill win 1000 times over what you
would ever lose buying the open on the big dip that doesnt come back. If youre scared to buy this dip on the open, just stay out of the
market theres no hope for you.

1 El Hosel  overbet • Feb 6, 2018 11:22 AM Permalink

0 Agreed, I covered my favorite shorts they came right back to me. Really nice to have a two way market for the moment.

2 Deep Snorkeler  waterwitch • Feb 6, 2018 12:34 PM Permalink

0 Is this the long awaited crash-reckoning-rebirth

for which we have been foretold?

1 shankster  Deep Snorkeler • Feb 6, 2018 2:28 PM Permalink

0 Or the end of Mankind as we know it?

3 PrivetHedge  J S Bach • Feb 6, 2018 9:10 AM Permalink

0 Most have already been replaced by a computer.

9 AHBL  J S Bach • Feb 6, 2018 9:12 AM Permalink

0 You do understand those traders are not investing their own money, right?
 

3 Bubble Man  AHBL • Feb 6, 2018 9:28 AM Permalink

0 "You do understand those traders are not investing their own money, right?"

Yes I do; and I plan on going to the bank today during lunch to withdraw more of that useless fiat paper and hide it under the mattress.

1 roadhazard  Bubble Man • Feb 6, 2018 11:55 AM Permalink

0 Eggzachery, all my money is still on the side... of the mattress.

0 optimator  J S Bach • Feb 6, 2018 9:18 AM Permalink

0 A life on the Lonk Giland Shore of course.

0 chippers  J S Bach • Feb 6, 2018 9:31 AM Permalink

0 Its a very very lucrative life...sad but thats how it works.

0 stustd  J S Bach • Feb 6, 2018 10:03 AM Permalink

0 ...not even paper...

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3 gregga777  J S Bach • Feb 6, 2018 10:06 AM Permalink

0 They are parasites like tapeworms. 

12 Polynik3s  J S Bach • Feb 6, 2018 10:12 AM Permalink

1 This complexity can be understood by any 100 IQ person. These are not the smartest men in the room, even a dog knows to steal meat off of a
table. Please do not mistake avarice and rapacity for wise stewardship.

As for suitable entertainment... if you enjoy watching the hyenas that raped your mother now encircle your sister... 

TheRothchilds are plunging you into WWIII, soon you will call for blood... But whose? Probably whomever they tell you to hate.

3 mkkby  Polynik3s • Feb 6, 2018 3:27 PM Permalink

0 Interesting that goldman warned of the inbalance ahead of time.  That should have been a clue that they and others were going to squeeze the
shorts.
Run your own money.  Never let some fund manager with no skin in the game *help* you.  They always get fucked by the smarter banksters who
have better information.

3 Cash Is King  J S Bach • Feb 6, 2018 10:37 AM Permalink

1 “Real” Traders did a shttload more than people realize. Aside from their actual duty of, you know, making a mkt (ie two sides) they, by the 10’s of
thousands, provided liquidity during mkt hours including the most volatile of times. Machines and the pajama warrior crowds have never been
asked for a mkt to work 2 million and watched their qtr  evaporate knowing the only that they did the right thing for a great customer. That’s why
it’s called Trading! Sometimes you eat the bar and sometimes the bar eats you! We never had flash crashes (except 97 after the halt, also caused
by “machines”) when humans were in control and believe it or not the amount of greed, while more spread out, was actually more contained!

as the old adage goes: be careful what you wish for..... & now it’s too late so quit bitching. Try making a size market dickhead, it’s a great way to
learn how to trade!

2 Big Boss Man  J S Bach • Feb 6, 2018 10:46 AM Permalink

0 I can remember the video clip of Larry Wachtel, of Bloomberg/1010 Wins (NYC business report), in 1987, with his sweaty comb-over and his
babbling incoherent report.

0 52821740  J S Bach • Feb 6, 2018 12:13 PM Permalink

0 The terror of error.

Perhaps 'Terror' is short for (T)rading Error ?

0 52821740  J S Bach • Feb 6, 2018 12:13 PM Permalink

0 The terror of error.

0 OneZero  J S Bach • Feb 6, 2018 1:23 PM Permalink

0 Problem is Johann, that it has been a REALLY profitable life for the last 20-30 years or so. We need to trade stocks, bonds and commodities. Toss
in some limited futures action. Baskets of stocks and baskets of commodities? Ok. But BETTING on the direction of a stock, bond, sector,
commodity or the market as a whole, so that people make money when values go down has got to go.Bets placed that certain bonds would go
tits up is what sparked the crisis in 2008. Eff these people who want to accumulate money, but don't want to create wealth.

1 hannah  J S Bach • Feb 6, 2018 2:07 PM Permalink

0 this is so easy a 8 year old would understand....so i will explain. wallstreet creates fake bs financial products which they sell back and forth to
each other causing the price to go to the moon. then the whole thing crashes to the moon so the taxpayer can keep bailing out wallstreet with
grants and zero interest money and they do it over and over again.....so easy because it is all bullshit.

14 overbet  opt out • Feb 6, 2018 9:06 AM Permalink

0 When the smartest guys in the room fuck up they do so royally. 

3 Fish Gone Bad  overbet • Feb 6, 2018 10:39 AM Permalink

0 It takes a really smart person to do something incredibly stupid.

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