Black Swan...The Day After the $XIV Titanic

I have a lot to share in this post but I will start with how I feel.

First, I am glad that I shared my story yesterday about losing money. I do appreciate the community on this blog and Stocktwits. Hundreds of people have reached out via email to share their $XIV horror stories. I am convinced there will be class action lawsuits. While I have never taken part in one, I will do so against Credit Suisse and the ETN providers.

While I feel better for sharing, I am embarrassed. I doubt that passes.

I am also pissed.

The market did what I thought it would do when I bought $XIV at the close yesterday. We rallied very hard off the lows of last night and closed at the highs of the day.

On any other day in the history of this product, I would have made a profit selling my position this afternoon.

I was using the product for exactly the reason it was created.

I waited patiently over the months and years for a record explosion in volatility and I believed that the price I was quoted was real based on the ALREADY record move in the VIX. Not before.

Credit Suisse ripped people off (my opinion) and likely violated securities laws by not halting XIV in the after hours session on NASDAQ.

We can vote with our wallets by boycotting all Credit Suisse Cheese products.

END.OF.RANT.

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Now for some inside baseball on this subject for people that want to read on…

First a laugh from The Fly on what the Credit Suisse Cheese fine print on $VIX documents really should read:

I would read all prospectus if The Fly could write them.

Here is what the chart looked like this morning:

This is no boating accident!

Here is a chart that really explains what an outlier this is (SPY vs XIV) but also why the SEC should stop all Credit Suisse products and ETN’s immediately:

I have put human ‘barriers to being wiped out’ in place on my large personal accounts. I use a phone to talk to a person to place all my big orders. That person is not at at a trading desk so that I do not get ‘talked into’ trades, but an assistant to my broker in wealth management. This person does not always pick up, especially after hours, and always reads back my orders very carefully. This small barrier has been a life saver for me. Luckily, my after hour orders were confusing and I just gave up when it was being read back to me.

Thankfully, I only blew up my small Robinhood account. As a sidenote, the Robinhood margin software worked beautifully and when I called Baiju (a founder) to share some feedback and ask about the margin calls that must have been exploding, he shared that no software covers up the pain that margin departments have to deal with when events like this happen. This implosion was a big big blowup heard around the brokerage industry.

Bloomberg has a good piece on these destructive volatility products. So far $2 billion of the $8 billion is vaporized but it’s likely trillions in risk that is related to these vehicles.

Here is how Credit Suisse did all this without losing any money.

Ophir had this post mortem that is really good. The real lesson: