I think it’s not so much the height of the spike that did it that time, but that combined with how low the VIX was just before that spike. Inverse ETFs are strange beasts. There’s no hard limit to the upside of what they’re tracking, but the inverse ETF can’t drop below zero, and this is a good thing compared to shorting the underlying yourself, since it caps your losses. For daily-tracking inverse ETFs with 1x leverage, a one-day move of the underlying of 100% of its previous day’s value would mean a total wipeout. For a 2x inverse ETF, it would only take a 50% move. Also remember that SVXY trades short-term VIX futures, not the VIX itself, which is just an index formula and can’t be traded directly. The February futures went from about 16 in the morning to over 30 in the afternoon on February 5th, 2018. A similar ETF, XIV, gave up and liquidated itself at the same time.
SVXY is a great investment. In small amounts—small enough that you could tolerate it dropping to zero overnight, which could really happen someday! Leverage down!
[Obligatory disclaimer: I currently have a small SVXY position. I usually do.]
I think it’s not so much the height of the spike that did it that time, but that combined with how low the VIX was just before that spike. Inverse ETFs are strange beasts. There’s no hard limit to the upside of what they’re tracking, but the inverse ETF can’t drop below zero, and this is a good thing compared to shorting the underlying yourself, since it caps your losses. For daily-tracking inverse ETFs with 1x leverage, a one-day move of the underlying of 100% of its previous day’s value would mean a total wipeout. For a 2x inverse ETF, it would only take a 50% move. Also remember that SVXY trades short-term VIX futures, not the VIX itself, which is just an index formula and can’t be traded directly. The February futures went from about 16 in the morning to over 30 in the afternoon on February 5th, 2018. A similar ETF, XIV, gave up and liquidated itself at the same time.
SVXY is a great investment. In small amounts—small enough that you could tolerate it dropping to zero overnight, which could really happen someday! Leverage down!
[Obligatory disclaimer: I currently have a small SVXY position. I usually do.]