These products did not exist during the last recession, and nobody is really sure how they will act in a real recession like 2008, especially now that their is exponentially higher than it was at inception, and could likely continue that trend of increasing for quite sometime, especially if a larger stock market correction occurs, and more investors look to these long products to hedge their risk or make a profit while almost everything else is red. Many are claiming that because some of these ETPs had been shorting on this run up, they had been helping to suppress , which helped to boost the stock market. Now many are quick to blame these products for being the "cause" of the crash this week by increasing . I think that the real truth here is that they did help suppress on the way up, because they sell when goes down, and we've had the lowest in the US since 1964, and as increases, whether it happens now or in the future, these ETPs will help to be unleashed like we've never seen before, because they will buying en masse as increases. These ETPs are not the only cause of , but they will likely be a major factor in helping to create more massive price swings in the VIX than we've ever seen before, which will either unleash or suppress , depending on which way the trend is going.
The most important part is that the long ETPs such as UVXY and VXX , could experience an "acceleration event" like XIV did, but because they are long VIX instead of short, like XIV , this could lead to a massive increase in the NAV of these Long VIX ETPs, potentially overnight, as these Long VIX ETPs become larger and the liquidity risk in the VIX market becomes far more significant. While it's not quite clear that these ETPs have reached critical mass, they will likely continue to increase in very quickly, particularly if this stock market correction becomes larger and more investors look to VIX ETPs as a way to hedge their risk or make a quick profit. This means there is a ticking time bomb in the market waiting to explode.
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