Market Losses in VelocityShares and ProShares Short (ETFs and ETNs)
Market Losses in VelocityShares and ProShares Short (symbol XIV and symbol SVXY)
To say that there has been a lot of volatility in the markets in the last few days is an understatement. On February 2, the S&P 500 index lost about 1.67%, before losing another 3.36% on February 5, only to gain back about 3% on February 6.
Investors who have money in stocks and mutual funds have experienced big ups and downs during the last week. However, investors who were betting on the market’s volatility have experienced the extremes of this market. Investors can bet on volatility by investing in exchange traded notes (or ETNs) and exchange traded funds (ETFs) that are linked to the VIX, or the CBOE Volatility Index.
Some of these ETNs have lost significant value in the last few days. For example, the VelocityShares Daily Inverse VIX ETN (symbol XIV), a product marketed by Credit Suisse, lost over 90% of its value from February 2 to February 6. In fact, Credit Suisse is shutting down this product by February 20.
The ProShares Short VIX Short-Term Futures (symbol SVXY) also lost nearly 90% during this same timeframe. The losses from both of these investments have lost over $1 billion in market capitalization.
The VelocityShares Daily Inverse VIX ETN (symbol XIV) and ProShares Short VIX Short-Term Futures (symbol SVXY) are examples of very risky, speculative ETNs and ETFs. When a stockbroker or financial advisor recommends an investment to his customer, he or she must ensure that the product is suitable or appropriate for that customer. If the stockbroker fails to make a suitable recommendation, that broker and his or her brokerage firm may be liable for investment losses.
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