What Happened to XIV? Volmageddon and the Inverse VIX Note

XIV was a Credit Suisse exchange-traded note that paid the inverse of the daily return on short-term VIX futures. On Monday 5 February 2018 the VIX index closed at 37.32, up from 17.31, its largest one-day percentage rise on record. XIV's indicative value fell about 96% after the close. Credit Suisse used a clause in the note's terms to end it, and holders were redeemed at $5.99 a note on 21 February, against $108.37 on the previous Friday.

The edge in XIV was real. Short positions in short-dated VIX futures had earned a documented premium for years, and investors who held the note through 2016 and 2017 made a great deal of money. What ended it was the product's design. A daily reset forced its hedgers to buy into the spike, and a termination clause turned a large loss into a total one. Traders call the day "Volmageddon."

What was XIV and how did it work?

The VIX measures the implied volatility of 30-day S&P 500 options. It cannot be bought directly. What can be bought are VIX futures and products that hold them.

Because volatility tends to revert to its average, VIX futures usually trade above a low spot VIX in calm markets. A product holding a rolling long position in the first two contracts sells a cheaper front month and buys a dearer second month every day, and loses as the futures drift down toward spot. Barclays' iPath VXX, launched in January 2009, held that long position. Whaley put the short-term VIX futures index's loss at about 94% over the six years to March 2012, as summarized secondarily.

XIV was the other side. VelocityShares created it in 2010, and Credit Suisse issued it as an unsecured note. It first traded at $10. It paid −1 times each day's return on the S&P 500 VIX Short-Term Futures Index, less a fee. A retail investor could now collect the roll and the volatility risk premium from an ordinary brokerage account, without a futures account.

An exchange-traded note is not a fund. It is a promise by the issuer to pay an index-linked value. The holder carries the issuer's credit risk, and the issuer decides how to hedge.

Why did XIV make so much money before 2018?

Because the premium it harvested is one of the best-documented in finance. Eraker and Wu estimated that constant-maturity one-month VIX futures lost about 30% a year from 2006 to 2013, gross of costs, and explained it as a risk premium: a long VIX position pays off in bad times, so investors accept negative average returns for it (Journal of Financial Economics, 2017). The short side earned what the long side lost.

2017 was a year of record-low volatility, and XIV became a retail favorite. Its offering prices reached $135, according to an investor complaint, and its market value was put at about $1.9 billion that winter. The broader idea, that options are priced above the volatility that follows, is explained in our article on the variance risk premium.

What happened on 5 February 2018?

The S&P 500 fell 4.1% on the day. The trouble was what happened after the stock market closed.

Figures from Credit Suisse's release and the investor complaint in Set Capital v. Credit Suisse; complaint figures are allegations, not findings.

The daily reset feedback loop

XIV promised the inverse of each day's move, not of any longer period. To stay hedged, the issuer had to hold short VIX futures sized to the note's value. When the index rose, the note's value fell, so the hedge had to shrink: the hedger had to buy back futures. It had to do so near the 4:15 pm settlement, when the day's return was fixed. Leveraged long-VIX products had to buy at the same time.

The companion's short VIX system file puts the mechanics in a stylized form. A $2 billion −1× product, after an 80% rise in its index, must buy about $3.2 billion of futures to restore its exposure. In a crowded market those purchases raise the very futures being hedged. The plaintiffs estimated that hedging XIV and two other Credit Suisse short-VIX notes required buying 105,474 VIX futures by 4:15 pm, while volume in the two contracts reached 167,377 in the minutes before settlement. Those are allegations, and Credit Suisse disputes the claims.

The termination clause

XIV's pricing supplement gave Credit Suisse the right, not the obligation, to redeem the notes early if their intraday indicative value fell to 20% or less of the prior day's close. An 80% fall, not a 100% one, was enough to end the product. On 6 February Credit Suisse declared that event. A holder could not lose more than the price paid. But the product carried −1× exposure to an index whose futures could double in a day, and the issuer controlled the decision to stop.

Credit Suisse said the fall had "no material impact" on it because "we hedge the risk," as quoted in the complaint. The holders, not the issuer, bore the loss.

Who else lost on Volmageddon?

XIV was not alone. The same premium, sold in other structures, failed the same week or in later spikes. The book's chapter on volatility as an asset sorts the casualties by how they failed.

According to the SEC, LJM had begun raising its risk in October 2017, selling more puts closer to the money, while removing references to historical stress scenarios from its due-diligence questionnaire. Its futures broker ordered the remaining positions liquidated to meet margin.

Was Volmageddon manipulation?

That question belongs to the courts, and it remained open in 2026. In January 2018, three weeks before the spike, Credit Suisse had offered 16,275,000 new notes on top of 10,793,880 then outstanding, according to the complaint. Investors allege that the issuance and the hedging contributed to the collapse. The Second Circuit revived manipulation and misstatement claims in April 2021, a manipulation class was certified on 11 February 2025, and no settlement had been found.

A separate set of allegations, that the VIX settlement process could be manipulated through deep out-of-the-money SPX options, concerned a different window, the monthly settlement morning. Griffin and Shams raised it in the Review of Financial Studies in 2018, and a whistleblower letter followed on 12 February 2018. Those claims are not findings about 5 February.

What does XIV teach about selling volatility?

The broader lesson is about the shape of the premium. A worked example in the book compares a seller of a one-month variance swap and a seller of a volatility swap, both struck at 20 volatility and sized to gain or lose about the same for small moves.

Stylized; vega notional $100,000 per vol point; before costs.

At 80 volatility, the variance seller loses about 41.7 calm months of gains in one month. That convexity is why short volatility must be sized for the crash month, not the average. It is also why the professionals who harvested the same premium with hedges, limits and the right to wait survived 5 February 2018. The companion's catalogue grades short VIX futures and inverse-VIX products C, against B for institutional delta-hedged short options, because of exactly this failure mode.

XIV in the four factors of the edge equation

The Edge Equation judges every strategy on four factors that multiply: edge, survival, execution, and discipline and adaptation.

Edge was present. The roll and the volatility risk premium in VIX futures are documented, and holders were paid for years.

Survival was removed by design. A daily reset forced the hedge to buy at the worst moment, and an acceleration clause ended the note after one day's move. The product could not survive the event it was built on.

Execution concentrated the problem: all the rebalancing for all the inverse and leveraged volatility products hit the same 15 minutes. It was 1987's mechanical selling, packaged for retail.

Discipline and adaptation is the investor's question. A product's terms decide whether it can survive the move it is exposed to, and they need reading before its returns.

The chapter on blow-ups and how they happen places XIV beside other cases, and the study of volatility and the variance risk premium covers the market's structure, including Cboe's role as the VIX's publisher. See also our list of the biggest trading losses in history and our overview of how trading firms make money.

The takeaway

XIV harvested a real and well-documented premium, and for years its holders were paid for it. It failed because its structure removed survival: the daily reset made its hedgers buy into the spike, and the 80% trigger let the issuer end the product after a single afternoon. Volatility pays its sellers in many small amounts and bills them in a few very large ones, and anyone who sells it must be able to pay the bill and still be in business the next day. The full account is in Chapter 6 of The Edge Equation, and the dated record is in the XIV and Volmageddon profile.