Despite some challenges in prior bouts of market volatility, the products have performed accordingly as engineered. Some do not believe that as they have mostly lost the majority of their value since being launched. Despite some of their prices being really high when looking at historical charts; the amount of reverse splits needed to have value in accordance with most exchanges has been a factor of why many investors have never understood the performance.
In fact, I was one of those investors that decided to buy plenty of the base VIX product to “hedge” my portfolio against negative price action. I continued to add throughout a year or two but despite a relative tame VIX index print, my positions continued to decline in value. For me, it was the best way to prove the traditional thought that an investor cannot remain solvent long enough to finally catch a negative market by shorting. I ultimately lost 50% of my investment despite the large increase we saw when the products collapsed in 2018 when the index surged.
Although they ultimately fixed and expanded the product offering, I sustained that options were a better way to hedge over time although they too rely on the VIX in pricing. The products for Credit Suisse which have been the Financial Services Company offering them reached over $6 billion in assets despite these historical challenges. Interest accelerated this year as the VIX reach new all time highs and with platforms like Robinhood catering to retail investors wanting access to quick “herd” trades. Over 26k accounts held the products earlier this year but Credit Suisse has now decided to shut down these products.
With $1 billion still in assets, the implications of the liquidation of the products will be interesting to follow; particularly if volatility continues to flux the way it has this year. The lack of alternative products may lead to even more irrational price behavior in their pricing given the demand and supply imbalance. I believe that the decision from a professional firm like Credit Suisse to stop this product could be an indication of a pending reduction in risk appetite by firms on Wall Street. If not, why sacrifice a niche that has seemed to be paying off? These are the small signs that keep us alert given the current economic and market conditions we see.
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