In a dream this morning, I heard a news report that the value of a certain ETF, called SVXY, had been reset to zero in after hours trading. Anyone holding positions on it had lost all their money.
SVXY is an ETF based on the VIX index, which measures market volatility and is sometimes called the fear index. SVXY moves higher when market volatility moves lower.
It sounds impossible for any ETF to reset to zero, but this was the third warning I’ve received. The first two were for UVXY, which is another VIX ETF that moves in the opposite direction as SVXY. At the time, I wondered if it was even possible, but later Zero Hedge posted an article explaining how it could happen. The reasons are complicated, but the point is it could happen if the market makes a big move in one day. Their example assumed a one-day drop in SPX of 3-4%. We haven’t seen many days like that recently, especially since markets have become so manipulated, but unexpected bad news could cause it, such as a war or natural disaster.
One way to avoid the risk is by buying put options for VIX based ETF’s like SVXY and UVXY. Put options gain value as the price drops, so if the price dropped to zero, traders would earn big profits. However, put options have their own risks, such as expiring worthless.
This information is being provided as a starting point for prayerful consideration and is not a recommendation for investing.
Author: James Bailey
James Bailey is a blogger, business owner, husband and father of two grown children. In 1982, he surrendered his life to the Lord Jesus Christ. In 2012, he founded Z3news.com to broadcast the message of salvation by reporting end time news before it happens.
© 2017, Z3 News. The first 200 words of Z3 News articles may be shared online in exchange for a clickable link to our site. Please include the author name and do not make any changes to text or titles. No image files from our site may be shared because we don’t own them. For permission to use our content in other formats, please contact us.