What happened with the inverse VIX ETPs was an isolated case during the recent market volatility as the plunge was attributed to the sudden spike in VIX futures due to heavy after-hours trading.
“Believe it or not, it was business as usual for us last week,” O’Rourke told ETF Trends. “We perform daily rebalance trades on all leveraged products, and most of these trades were larger than the averaged, but our systematic process was followed and we had no operational issues.”
Direxion Funds is known for its inverse and leveraged ETFs but it does not offer any VIX-related funds. O’Rourke explained that their inverse and leveraged ETFs operated normally, with none of their funds down more than 15% – their 3x or 300% products would lose three times the amount when the markets fall 5% on any given day.
ProShares, which is also known for its suite of leveraged and inverse products, also came back and painted a picture of normal ETF operations with tight bid-ask spreads and heightened volume on the greater volatility.
Like any other complex investment product, investors should be aware of the potential risks associated with these leveraged and inverse products. Investors may be mad if they are on the wrong side of the trade, but they should understand that that is the risk they are willing to take for the potential upside these types of products may produce.
For more information on geared products, visit our leveraged ETFs category.