Equity traders learned that the hard way when an explosion of market tremors in February 2018 sent the value of several popular short-VIX exchange-traded products to zero.
One saving grace is that “drawdowns in credit have tended to be less severe than in equity,” according to Lytle.
The Tabula ETF seeks to open up a trade that’s been the province of specialists to a broader audience. Typically, shorting credit vol requires a manager. A systematic program of selling contracts on the swap indexes necessitates sophistication and infrastructure, as does the more widespread strategy of selling options on high-yield bond ETFs.
With shares initially priced at 10,000 euros each, the product is principally aimed for professionals. But the anemic trading volume is proving a barrier to some. At Credence Capital Management, Yannis Couletsis sees “potential” in the ETF but limited trading volumes could make selling the fund “strenuous if trying to get out on a nervous day,” he said.
“We think one has to trade that market,” said the volatility manager. “Get in, get out, revisit in the next opportunity.”
This article provided by Bloomberg News.