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Popular bets on low volatility were pummeled on Wednesday, as the market endured its first big selloff of 2017 following a protracted period of calm on Wall Street.
A pair of popular ways to bet on a protracted period of calm in the markets were getting hammered as the stock market suffered its worst daily decline in months. The VelocityShares Daily Inverse VIX Short-Term exchange-traded note XIV, -11.93% called XIV, was off more than 10%, putting it on track for its sharpest one-day drop since Sept. 13, according to FactSet data. Another popular ETF product that allows investors to bet on market calm, the ProShares Short VIX Short-Term Futures ETF SVXY, -11.88% or SVXY, also was down by about the same amount and looking at its steepest daily drop since September.
The so-called exchange-traded products were designed to allow investors to essentially bet against soaring volatility and had otherwise enjoyed an extended period of success year-to-date. The XIV is up a whopping 58% so far in 2017, while the SVXY boasts a similar year-to-date advance. The CBOE Volatility Index, or VIX — the index those funds are pegged to — is jumping the most in about eight months amid Wall Street’s first major equity-market selloff in months.
The Dow Jones Industrial Average DJIA, -1.34% is on pace to see its worst daily drop since Sept. 13, 2016, while the S&P 500 index SPX, -1.31% and the Nasdaq Composite COMP, -1.83% have been threatening to ring up their sharpest one-session drop since March 21.
Investors have increasingly been piling into these antivolatility bets, represented by big inflows over the past weeks. Those trades came as the VIX, otherwise known as Wall Street’s fear gauge, closed at its lowest level since 1993 last week.