I have been reading on how the market corrected in February, thus causing many securities to drop. One that I have came across was VMIN. I was wondering why it dropped so dramatically? Did they restructure their stocks? Or is this just due to high volatility in the VIX and S&P?
Pretty much all of the VIX-based ETFs got hammered in an out-sized way compared to the underlying VIX futures market because the ETFs have to rebalance their positions according to movements in the underlying. In a fast moving VIX futures market like on Feb 5, supply of the futures contracts became scarce and the ETFs had to use more and more millions of dollars to equalize their futures contracts in XIV, SVXY, VMIN, and others. And once the prices of these ETFs started cratering late afternoon, algorithms triggered additional selling pressure which required the ETFs to rebalance yet more futures contracts which were already in short supply, creating a positive-feedback loop that Goldman and others had been warning about for years called "The Doom Loop." In a nutshell, the drop in price in VMIN and others is permanent. When (if) VIX returns to sub-12, the ETFs that survived the Doom Loop will not pop back up to their previous price levels.
