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Toronto Financial Adviser blows up his account shorting VIX

  • Last Updated:
  • Feb 27th, 2018 12:58 am
[OP]
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Oct 19, 2016
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Toronto

Toronto Financial Adviser blows up his account shorting VIX

H Hajiyan, a 35-year-old financial adviser who lives in Toronto and has been investing for more than a decade, assumed stocks would continue to grind higher this year, similar to the gains the Dow and the S&P 500 had posted for much of the past two years without a pullback.

“All of the strategists agreed the market would go up,” said Mr. Hajiyan.

At the end of January, he placed an ill-timed bet and used only margin to fund a large position in the ProShares Short VIX Short-Term Futures exchange-traded fund (SVXY), which rises as long as stock prices remain stable. When the S&P 500 fell into correction territory to erase one of its best starts in years, Mr. Hajiyan’s investment in the ProShares fund tracking expected market swings was nearly wiped out, forcing him to liquidate hundreds of thousands of dollars of securities to answer the margin call.

“I was in denial,” said Mr. Hajiyan after he realized he lost about 600,000 Canadian dollars (US$472,260) worth of his C$1.1 million investment portfolio.

Despite losing a sizable portion of his wealth, Mr. Hajiyan says the experience hasn’t soured him on using margin debt. “If I wasn’t using margin, I wouldn’t be at this level,” Mr. Hajiyan said of his profits before the pullback. “As my money grows, I’ll limit the amount of margin I use.”

https://www.wsj.com/articles/investors- ... 1519560001
8 replies
Deal Guru
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Mar 9, 2007
13969 posts
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Think of the Childre…
Image

WOULD SOMEBODY THINK OF THE CHILDREN!!!
Deal Expert
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Apr 21, 2004
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He must make a killing on the back load fees to get to a $1.1m portfolio.
Deal Addict
Nov 30, 2006
2278 posts
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Yeah. I'd be more interested in how he got to the 1.1 million. Must have employed some serious leverage given his age and occupation.
Deal Addict
Jul 27, 2017
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I wonder if it was 'his' own money or 'his clients money'?

or he has reversed his position (simply shorted the VIX again) back to 'no loss' now the VIX has dropped from its early February highs
Deal Addict
Nov 9, 2013
4054 posts
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Edmonton, AB
I find this interesting in a few instances.

1) Why tell your story to the WSJ about this - wouldn't this negative publicity be bad for a career?
2) Why say "I was in denial" and then fail to learn from your mistakes and continue to use margin ("next time it'll be different?")
Keep calm and go long
Deal Fanatic
Jul 1, 2007
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Izzoshady wrote: Yeah. I'd be more interested in how he got to the 1.1 million. Must have employed some serious leverage given his age and occupation.
Some advisors make that in a year.

Seriously though, all these people who lost fortunes on SVXY or XIV... how freaking stupid do you have to be? Okay, so you think stocks will go higher, so do I, but if you look at the history of the VIX you know that its historical norm is more around 20, and even during growth phases it fluctuates in the 10-20 range. When it was right around 10 why didn't you close off your entire position???
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Deal Addict
Nov 30, 2006
2278 posts
123 upvotes
Thalo wrote: Some advisors make that in a year.

Seriously though, all these people who lost fortunes on SVXY or XIV... how freaking stupid do you have to be? Okay, so you think stocks will go higher, so do I, but if you look at the history of the VIX you know that its historical norm is more around 20, and even during growth phases it fluctuates in the 10-20 range. When it was right around 10 why didn't you close off your entire position???
Most likely recency bias. When you've become so conditioned to being 100% right on a trade for years (shorting volatility) your brain just conditions itself into allowing you to make these types of decisions. In hindsight, it was a terrible trading strategy but for the retail crowd, hard to place blame especially given that they weren't sophisticated enough to know the true risks.

Sucks for them, but a loss they'll remember for years to come.
Deal Fanatic
Jul 1, 2007
8492 posts
1616 upvotes
True, but it's one thing to be in a hot stock and expect it to keep going up; it's another to ride SVXY and think that the VIX was headed much much lower than 10, sustainably. How much lower can it go? It's like going long duration government bonds 2 years ago.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.

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