The bears den

[OngHuatHuat]

 

[Shiny Things]

Liquidity problem might drive the etf prices down compare to the actual index. No one guarantees the price will match the actual assets.

That’s already happened, and the markets were fine. I know ‘cause I was there.

It was August 2015. The futures markets were shaky overnight, and when the markets opened up in the morning, the market-makers started withdrawing their bids and offers because the markets got too volatile.

This lasted for about fifteen minutes - and in that time, a few ETFs traded 5-10% out of line with their NAVs (I bought some of them!) - but once market-makers started stepping back in, prices converged with their NAVs, and everything was fine by about an hour after the open.

So, three things:
1) It was a huge trading opportunity for people who were actively watching the markets and didn’t panic;
2) Long-term holders didn’t even notice it had happened, because it was over in less than an hour;
3) The only people who were hurt were people who saw CNBC screaming “OMG ETFs are broken SELL EVERYTHING” and panicked.

 

[Shiny Things]

To me, having vix in the portfolio is as good as applying a hedge and since it is negatively correlated to risk, it does not add on to overall returns on a risk adjusted basis.

Hmm. Counter argument, and I’m just thinking out loud here: long-VIX is a negative carry position (for anyone who doesn’t believe me, look at the long-term chart of VXX). If you’re trying to reduce your portfolio risk, wouldn’t it be better to just reduce your equity delta and carry more cash?

(Oddly enough, shorting SPX futures these days is a very slightly positive-carry position—because the interest you earn on the implied cash is more than what you’d pay in implied dividends.)

 

[DukeCS33]

Hmm. Counter argument, and I’m just thinking out loud here: long-VIX is a negative carry position (for anyone who doesn’t believe me, look at the long-term chart of VXX). If you’re trying to reduce your portfolio risk, wouldn’t it be better to just reduce your equity delta and carry more cash?

(Oddly enough, shorting SPX futures these days is a very slightly positive-carry position—because the interest you earn on the implied cash is more than what you’d pay in implied dividends.)

Yes I am with you and that is why I replied that adding vix to the portfolio does not really benefit.

 

[BBCWatcher]

....This lasted for about fifteen minutes - and in that time, a few ETFs traded 5-10% out of line with their NAVs (I bought some of them!) - but once market-makers started stepping back in, prices converged with their NAVs, and everything was fine by about an hour after the open.

So, three things:
1) It was a huge trading opportunity for people who were actively watching the markets and didn’t panic;

There were probably several computers owned by people (businesses) that noticed that particular problem and swooped in.

2) Long-term holders didn’t even notice it had happened, because it was over in less than an hour;

I’ll have to check the latest numbers, but I believe the bulk of long-term U.S. investors’ stock assets are held in mutual funds, not exchange-traded funds. So that’s another reason long-term investors didn’t notice anything.

3) The only people who were hurt were people who saw CNBC screaming “OMG ETFs are broken SELL EVERYTHING” and panicked.

Yet another great reason to turn off the Financial Porn Channel.

 

[SBC]

Hmm. Counter argument, and I’m just thinking out loud here: long-VIX is a negative carry position (for anyone who doesn’t believe me, look at the long-term chart of VXX). If you’re trying to reduce your portfolio risk, wouldn’t it be better to just reduce your equity delta and carry more cash?

(Oddly enough, shorting SPX futures these days is a very slightly positive-carry position—because the interest you earn on the implied cash is more than what you’d pay in implied dividends.)

Are you referring to the “decaying” of the VIX pricing mover time?

Any technical explanation for this? Thanks

 

[yang_nastyman]

How can I purchase Vix through dbs vickers?

 

[littleredboy]

I think playing VIX is only for extremely short term, not worth it to hold long term. Intra to short term swing. Cant hold for long in portfolio one.

 

[Shiny Things]

How can I purchase Vix through dbs vickers?

To be very blunt: if you have to ask that question you shouldn’t be doing it. “Vix” is not a thing you can purchase, and if you get involved in it without knowing what you’re doing you’re almost guaranteed to end up losing money.

You can’t trade the VIX index directly. There are futures on the index, and there are ETFs that own those futures.

Are you referring to the “decaying” of the VIX pricing mover time?

Nah, this is entirely separate. Being long volatility is inherently a negative-carry strategy, no matter what vehicle you use to do it.

Being long vol is like taking out an insurance policy on your home. You pay a small premium in return for hedging against the risk of your home going up in flames.

There were probably several computers owned by people (businesses) that noticed that particular problem and swooped in.

It wasn’t even computers - the reason things got so wonky that morning was that the market-making firms switched their computers off and humans were able to step in. The market was so whacked out that morning that little old me, sitting at my laptop in my underwear with my slow reflexes and my IBKR account, was able to post some ridiculously low bids, get given, and then turn around and sell them out five minutes later and 5% higher.

 

[Trader11]

That’s already happened, and the markets were fine. I know ‘cause I was there.

It was August 2015. The futures markets were shaky overnight, and when the markets opened up in the morning, the market-makers started withdrawing their bids and offers because the markets got too volatile.

This lasted for about fifteen minutes - and in that time, a few ETFs traded 5-10% out of line with their NAVs (I bought some of them!) - but once market-makers started stepping back in, prices converged with their NAVs, and everything was fine by about an hour after the open.

So, three things:
1) It was a huge trading opportunity for people who were actively watching the markets and didn’t panic;
2) Long-term holders didn’t even notice it had happened, because it was over in less than an hour;
3) The only people who were hurt were people who saw CNBC screaming “OMG ETFs are broken SELL EVERYTHING” and panicked.

Thanks Shiny. I think index etf is generally safe. Not sure about other ETFs though

 

[limster]

https://forums.hardwarezone.com.sg/96057184-post249.html

I was also around in August 2015 and even got the screenshot

This is during trading hours, there was NO OFFER PRICE as market makers had shut down.

 

[OngHuatHuat]

Today Apple release new iphone.

 

[Shiny Things]

Thanks Shiny. I think index etf is generally safe. Not sure about other ETFs though

You're right that index ETFs are safe, though I'd go beyond "generally" safe - I think the creation-redemption mechanism means they're pretty much immune to liquidity disruptions, and the fact that the August 2015 disruption was as short as it was (less than an hour) is proof of that.

What sort of "other ETFs" are you concerned about?

 

[Trader11]

You're right that index ETFs are safe, though I'd go beyond "generally" safe - I think the creation-redemption mechanism means they're pretty much immune to liquidity disruptions, and the fact that the August 2015 disruption was as short as it was (less than an hour) is proof of that.

What sort of "other ETFs" are you concerned about?

Those leveraged etf, vix etf, commodities contract ETFs. Any etf that involves derivatives of sort. They can go burst if black swan event happens.

 

[Shiny Things]

Those leveraged etf, vix etf, commodities contract ETFs. Any etf that involves derivatives of sort. They can go burst if black swan event happens.

Your original question wasn't about leveraged ETFs going bust, though? The original question was about prices getting dislocated compared to the NAV, which we already agreed isn't really a problem on timescales longer than an hour or so. Which are you concerned about?

 

[DukeCS33]

An interesting perspective of the trade war:

https://www.cnbc.com/2019/09/06/tar...-in-the-trade-war.html?recirc=taboolainternal

Decoupling may have been the main play for the US and if this is implemented well, China stands to lose big. The one thing that the Chinese government fears most is social unrest. And given the large number of people entering the job market each year, they need to be able to give jobs to these citizens or risk unrest. US firms shifting production out of China can have a snowballing effect in reducing jobs.

 

[DukeCS33]

Are there any traders or investors here who follow Wcykoff theory and principles?

 

[littleredboy]

Even though I have a bullish view of China, and everyone is claiming China is a sleeping dragon.
This trade war had shown that it is the USA who is waking up.
Frankly, during this calm period I'm beginning to miss Trump and all his injected volatility.

 

[DukeCS33]

Even though I have a bullish view of China, and everyone is claiming China is a sleeping dragon.
This trade war had shown that it is the USA who is waking up.
Frankly, during this calm period I'm beginning to miss Trump and all his injected volatility.

It all depends on how the Chinese engineer a trade and manufacturing orientated economy to one driven by consumer and services. The US, by its actions, is forcing manufacturers to move their factories elsewhere. The whole supply chain may well be pulled along and when that happens, it would impede this move towards consumerism while hurting trade.
A centrally managed economy just lacks the efficiency of a market driven one in terms of resource allocation and innovation. So sleeping dragon.. Yes I would agree but the key question is if it may awaken.

There was quite a fair bit of volatility last night. Started lethargic but several stocks were trading quite large ranges as opposed to an index that is really boring. I do think that the market is refusing to give up ground and we are probably seeing some consol before the next leg up.

 

[littleredboy]

My suppliers have started to complain manufacturing in China is no longer as good as before. Cheaper yes, but not attractive. Why don't foxconn base their production in Taiwan I'm not sure, suspect its the human rights issues? Vietnam is now a hot favorite.

And God help Hongkong. I really wonder when the HKD will be replaced by the RMB. 5 years? 10 years? 2047? It is inevitable. *Snap* *Poof*