
Credit Suisse Fund Liquidated, ETFs Halted as Short-Vol Bets Die - onecooldev24
https://www.bloomberg.com/news/articles/2018-02-06/credit-suisse-is-said-to-consider-redemption-of-volatility-note
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csense
TLDR, a bunch of people lost their money placing a bet on a number that comes
out of a complicated formula involving stock prices.

The article's handwringing because their number might have included "novice
retail investors" who didn't understand what they were buying, and only bought
it because it's been a winning bet for a while.

If you don't fully understand a financial or investment product, you shouldn't
buy it. Financial products involving words like "leveraged" or "options" or
"cash-settled futures" are quite often more like bets than investments, and
you should only trade them if you fully understand the product you're trading
and are willing to accept that losing the bet may mean losing all the money
you put in.

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tfolbrecht
If you're using leverage, and not able to lose more money than the fixed
amount of shares you purchased, how else would it work?

These instruments are a way to do fancy portfolio balancing, not bets and
speculation. You'll need "real" leverage where you can come out in the
negative instead of $0 to do that.

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amerine
Can someone help me understand what this is?

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schrectacular
TL;DR leverage is dangerous.

"Vol" means "volatility" which is a measure of how much the market moves over
some interval of time. If the markets are getting more stable, it goes down,
if markets are more choppy or have a higher varianceit goes up. Companies
created funds, called ETFs or ETNs that let buyers bet on volatility. These
funds are super easy to buy from any brokerage.

These funds were leveraged, which means they are based on bets against the
underlying VIX index. This allowed them to move multiples of what the VIX
moved, 2x or 3x as much.

The markets have been super calm so people were buying these funds that
returned a lot of money if the market stayed calm. All of the sudden on Monday
the market moved a LOT. The DOW dropped something like 1500 points and then
bounced back 700 points within something like 15 minutes.

This caused the leveraged "short vol" funds - funds that were designed to move
opposite multiples of the VIX (VIX moving not much made the value rise, VIX
moving a lot made them fall) - to lose so much money so fast that the
companies had to close them down. Billions of dollars lost in tens of minutes.

Hope that helps. I'm not an expert but that's how I understand it.

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GreaterFool
I think is more like "tl;dr read the fine print"; not about the leverage. I
think the rules of that particular note stipulate that 80% drop in value (it
dropped more than that) triggers liquidation event. So you can't wait out the
plunge. If I understand correctly Credit Suisse walks away, closes down their
hedges, most likely loses nothing. And your shares go to 0.

~~~
onecooldev24
And they charge you expense for 8 years, which is how they make money.

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snissn
Stock twits co-founder is mad about this
[https://twitter.com/howardlindzon/status/961094748151918592](https://twitter.com/howardlindzon/status/961094748151918592)

