I was watching the TV show Billions today, and a fund manager in the show was referring to how their fund avoided XIV Liquidation by selling VIX position earlier than others. I didn't quite understand this because I thought if XIV is liquidating and you are losing money, shouldn't you be buying VIX to offset? Am I not getting something or is this an error on the show?

  • Axe did not qualify if the position was long or short in that statement. You are taking "selling our VIX position" to mean Axe Capital was long VIX. Ordinarily that is true; You don't "sell" out of a short position, you buy to cover. I think in this case they did have a short position and they closed it out, which would have been a better way to describe the trade. It's likely due to how the dialogue was written in the show. – HK47 Jun 11 '18 at 21:43

I don't know what transpired on the show "Billions" so I can't address their position or how they managed it. If you correctly described Axe's statement, it would be incorrect.

XIV is exchange-traded note (ETN) that is designed to provide inverse performance of the VIX. So you several choices to avoid further losses during a drop:

  1. You can close your existing position and end the pain

  2. If options are available, you can hedge but that still incurs additional losses due to the cost of the hedge as well as distance to the strike price, if any.

  3. If there is a corresponding long ETN that hopefully tracks 1:1, you can buy that to offset. Such a long position has to be taken long before the troubled ETN reaches liquidation status (the leverage has destroyed all assets and the ETN must be terminated). This offsetting pair provides no P&L potential.

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