Might as well just start calling this shit for what it is...
“Volatility of Vix at one point reached 2008 levels.
The effect of levered ETFs is one reason that the Vix is less useful as a barometer of financial stress than in the past.” Black Rock, the largest mutual fund in the world, has previously warned about the risks of levered ETFs, and in a policy paper in July reiterated recommendations, “that these products not use the ETF label”.
What the article here misses is the big players know where they can take the market to run stops and cause short-covering, etc.
If you're looking to why the VIX effect isn't having the desired influence you need to look at the bigger picture. Only way to cancel out short volatility (selling a vix future) is by synthesizing the long equivalent out of spx options.
Futures contracts only require a small amount of money, or “margin”, to be paid up front to cover potential losses, rather than having to pay the full amount of the investment, allowing an ETF to buy a larger value of futures contracts than investors have paid into the fund.
For example, investing 0 in an ETF offering twice the returns of the Vix futures index will mean the ETF provider buys 0 worth of futures.Force down VIX to convince the programs it's safer to buy more stocks and you will lift the cash price of stocks.The same 'bank for your buck' applies when manipulating stocks higher.There is rising concern over the bigger role played by passive or systematic trading strategies in equity markets — given the current uncertain global economic and financial backdrop — with some fund managers arguing that their techniques are aggravating market movements.Four products, two run by Pro Shares and two run by Velocity Shares, totalling .8bn in assets, bought close to 35,000 Vix futures contracts on August 24, according to calculations from public data by Macro Risk Advisors, a broker dealer.Total trading volume in the futures contracts that day reached 569,000.