Many Investors Drowned by "Hurricane" in VIX Products

The Volatility "Hurricane" That Rocked Wall Street

In the investing game, they are calling it the "volatility hurricane." On February 5 of this year, US stocks fell 4 percent and the VIX shot up 20 points, the largest one day move of that index ever. For those who don't know, the VIX is an index that tracks volatility - it is often referred to as Wall Street's "fear-gauge."

Leading up to February, all of 2017 had seen volatility and the VIX at near record low levels. All was calm. Then, suddenly, in one day the percent gain in futures swung 96 percent. The huge leap crushed short-VIX ETPs, which lost nearly all of their value. Some of those products shut down entirely. Some limped along but have never recovered. Trading overall in VIX products has fallen off sharply ever since.

LJM Fund Implodes

One of the biggest losers in the VIX linked space was the LJM Fund. In March, LJM - which was supposed to be a "preservation and growth fund" - announced that it would have to shut down. Investors lost approximately $20 million. Furious at having allegedly been mislead by the fund, many of these investors are now taking legal action to try to recoup their staggering losses from LJM.

VIX ETPs Were Halted From Trading and Have Projected Zero Value

At the time of the hurricane, another set of VIX linked products collapsed under the heavy market volatility. Having lost greater than 80% of their value, three U.S.-listed inverse VIX Exchange-traded funds were halted from trading and a short sell restriction was placed on them:

  • VelocityShares Inverse VIX Short-Term ETN XIV.P
  • ProShares Short VIX Short-Term Futures ETF (SVXY.K)
  • VelocityShares Daily Inverse VIX Medium-Term ETN (ZIV.O)

Investors May Take Legal Action Over VIX Products

Investors seeking to recover some of their losses due to the hurricane may have several options open to them. As mentioned above, investors in LJM are suing the management company for allegedly misrepresenting the nature of the nature of the fund as seeking "preservation and growth." 

Retail investors in VelocityShares and ProShares, however, may have an even more promising path to legal action if they were sold VIX linked products by a broker or financial advisor.

LJM and the other products are, of course, not the only securities affected by the hurricane or potentially eligible for legal action. Contact us to find out about other products that were involved.

PA & NJ Securities Litigation Firm

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If you or someone you know suffered losses to a complex securities product or VIX-linked product, please contact our securities attorneys immediately for a free consultation toll-free at 215 462 3330 or by using our online contact form.