Immediately following XIV's catastrophic after-hours performance, there was ample speculation that other volatility products could also be terminated.
Two investment products linked to the Cboe Volatility Index (VIX) imploded in USA after-market trading on Monday.
Two exchange-traded products that democratized access to one of Wall Street's most tried-and-true strategies - selling volatility - had just $3.6 billion in assets on Monday. To much of the investing public, stock market volatility just sounds like price gyrations.
The blow-up was the culmination of a long-running and wildly popular short volatility trade that was one of 2017's most profitable.
The S&P 500 had not fallen by more than 5 percent for more than 400 days, the longest run since the 1950s, according to Mark Haefele, chief investment officer at UBS Wealth Management.
Products such as XIV and its close relation, the ProShares Short VIX Short-Term Futures ETF (SVXY), aim to offer investors exposure to the inverse of the daily moves at the front portion of the VIX futures curve, and typically benefit from market tranquility.
This was the first serious test for these ETFs, most of which were launched after the global financial crisis. However, an exchange traded note, like the name implies, is a type of debt note that trades on an exchange.
The firm said that investors will receive a cash payment per ETN in an amount equal to the closing indicative value of XIV on the accelerated valuation date, which is February 15. That's a tiny fraction of the roughly $2 trillion estimated to be linked to short-volatility strategies - and a speck of dust compared to the $23 trillion in market value of S&P 500 companies.
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UBS analysts estimate that a US equity decline of 7.4 percent, as seen over the last five working days, has historically been associated with a high yield spread widening of 75-80 basis points while the actual move has only been 21 basis points.
While holding cash can keep a portfolio from plummeting - cash doesn't move in any direction, of course - that's not why investors should use it as a volatility-mitigating tool.
Meanwhile, ProShares will continue to operate SVXY, which is structured as an ETF. These inverse volatility ETNs are created to be reverse-levered to the VIX.
The long-awaited market decline from record highs sent people to options for protection, raising prices for those derivatives, and eroding the value of XIV and other investments that effectively bet on tranquil conditions.
The market had been unusually calm over the past few years, making shorting the CBOE Volatility Index or the VIX-also known as the market's fear gauge-one of the very popular trades.
"I am a bit surprised that we haven't seen the contagion effect on other markets and that makes me wary about the outlook in the near term", said Morgan Stanley's Redeker.