Out-of-whack Credit Suisse security puzzles volatility traders

A small, unexplained aberration in a highly specialized corner of the vast US equity and derivatives market is causing a buzz among traders already on edge about a potential market pullback. An exchange-traded note issued by Credit Suisse Group AG, commonly known as TVIX, that tracks stock market volatility is trading at a premium of about 3% over what it should be priced based on its underlying securities. That premium is about twice the average for the past year. While TVIX is not considered a bellwether for the stock market, at a time when investors are jittery about the health of the equities market any unexplained price moves serves to unnerve investors. In the past, the TVIX premium has risen when stocks have fallen. So a persistent premium when equity markets are relatively strong has stumped specialized traders of volatility. Normally, traders do not pay much heed to how the TVIX is behaving. But these are not usual times. The S&P 500 is flirting with all-time highs, despite signs that US President Donald Trump’s trade war with China and Britain’s planned exit from the European Union may be pushing the world into a recession. To many traders it is only a matter of time before markets fall, and they want to see it coming before others do. The TVIX is of the same genre as an ETN called XIV, which went bust in a matter of days in February 2018 after a spike in its premium. Holders of that […]

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