There’s another massive opportunity shaping up in the market, but before I get into that due to these important times, I’m opening up my phone lines for you to call me today and tomorrow.
I know that many of you still had some questions that couldn’t be answered because of all the people that showed up.
So dial: 888 – Trade01
I will be here answering your questions during these tough times.
Next Tuesday I’m going to be hosting a live event to recap the last few weeks as well as go over what I’m about to show you below…
Now we are gonna get a little “mathy” here, so bear with me, because this is HUGE and worth it.
You see there’s a few ETP’s that track volatility, like VXX, TVIX, UVXY, to name a few…
Right now in just three ETP’s there is a TON of money tied up. VXX has over 2 billion dollar in AUM, TVIX has over 5 billion in AUM, and UVXY has over 1 billion. That is almost 10 billion in Assets Under Management!
There are of course other ETP’s (exchange traded products) out there, but those 3 are the elephants in the room.
Here is the crazy part, this time just one short month ago, the total AUM of these products made up only about 1 billion dollars…
And it was all basically in the VXX.
Nooowwwwww, because TVIX and UVXY are levered, they have more than 3 times the value of VXX(aka the big dog from before).
This. Is. Dangerous!
And let me tell you why…
The total value of all the April VIX futures (which is what these products are currently holding) is about 18.5 billion dollars.
Concentrating on JUST the leveraged ETP’s I mentioned above, they currently account for ⅓ of the TOTAL value of the outstanding VIX futures.
Because of the leverage, as the VIX futures rally these products should actually become a bigger piece of the pie.
Think about it this way, the April VIX future settled about 70 today. If the VIX Future doubles tomorrow to 140 and the open interest stays the same, then the total value of the open futures would be 37 billion (18.5 billion X 2).
Because TVIX has to by design return DOUBLE that of a 30 day VIX future, if the managers of TVIX do their job, it should be up 2X that of the increase in the VIX futures (this means TVIX should be up 200%).
The price of TVIX will be 3X its closing price today.
If there is 5 billion in AUM today, the increase in AUM should be 10 billion.
TVIX would be 15 BILLION In AUM.
In similar fashion, UVXY would need to see its AUM increase to 3 billion.
UVXY and TVIX would become 50% of all the futures in the VIX
The problem is, that value doesn’t come out of thin air. In order to ‘track their return’ of 2X a 30 day future SOMEONE is going to have to buy a LOT more VIX futures.
It becomes a nasty feedback loop, however one we can take advantage of this loop.
If everything runs seamlessly, the two ETP’s reach their target values, and there is more open interest created by the products. All is well.
But what if everything does NOT run seamlessly? What can happen?
At 30 days to expiration the April VIX future should have about ½ of the volatility of the VIX cash index.
Today, the April future was up 9, the VIX was up less than a point, this is what can happen when that FEEDback loop starts to develop.
A great example of this was February 5th of 2018. This was a day the market crashed and VIX spiked so much it blew up an ETP called XIV below:
This can happen again with where we are at but this time with a LONG ETP!
Are we in the middle of a developing Volpoclypse driven by long ETP’s?
Or, if VIX comes off quickly, we could have the OPPOSITE of Feb 5 and see TVIX and UVXY completely collapse.
What is the opposite of a Volpocolype… A Volapse?
I’m gonna go through this in detail next Tuesday with our recap live.
Your Only Option,
P.S. – I know this one was a bit complicated but seriously call me up at 888-Trade01
I wanna hear from you guys on any questions about what we’ve been going through these past two weeks.