(Bloomberg) -- Investors at E-Trade can no longer bet on a volatility ETF with borrowed money.
Customers of the online brokerage received notices that the margin requirement for trading the iPath S&P 500 VIX Short-Term Futures exchange-traded note (ticker VXX) increased to 100 percent from 60 percent, essentially meaning they have to use their own cash. That could mean margin calls for accounts that had borrowed money invested in the fund.
The fund surged 33 percent Monday as U.S. stocks suffered their worst day since 2011. That spells trouble for investors who elected to short VXX to express a short volatility position, a popular alternative to going long an inverse fund in an effort to avoid being wiped out as part of an "acceleration event." However, shorting the VXX also leaves investors vulnerable to potentially unlimited losses, something that's likely top-of-mind for E-Trade this morning.
As of mid-January, short interest in VXX was close to 33 million shares of a little more than 35 million outstanding.
To contact the reporter on this story: Luke Kawa in New York at lkawa@bloomberg.net.
To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh, Dave Liedtka
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