A thread on the mechanics of XIV:
XIV is an exchange-traded note. Its issuer, Credit Suisse, borrowed 100 and will repay some amount at maturity, which is Dec. 4, 2030. What is that amount?
We start with 100. Each day, we tack on a "Daily Accrual," which is the return on three-month T-bills (negligible in this context). Then we multiply by the return on a specified index, times minus 1 (because this is an inverse ETN).
And we subtract a fee. Voila, a new amount. This is the "Closing Indicative Value." We keep doing this until Dec. 4, 2030, and the investor gets paid whatever the last value is.
Now, the specified index is the S&P 500 VIX Short-Term Futures Index ER. It went up 96% yesterday. Yikes! We multiply yesterday's value by 0.04. That's the new Closing Indicative Value. You can see where this goes.
There's a wrinkle. The S&P 500 VIX Short-Term Futures Index ER can rise more than 100% in a day. But we're multiplying by minus 1 and the indicative value can't fall by more than 100%. So:
Every 15 seconds, we calculate an "Intraday Indicative Value"--same formula. If that value ever drops by 80% from the prior day, Credit Suisse can declare an acceleration, pay holders the Closing Indicative Value on that day (but never less than 0) and the note is done.
Astute readers will note that this daily reset pattern (up 3% today, down 3% tomorrow) trends to zero. In the long run, under almost any conceivable scenario, XIV is worth zero at maturity in 2030. In other words, this is pretty much bound to happen.
This is not a secret! It's right there in the prospectus! Bolded and underlined! 
It is an inexorable drop. XIV was started in 2010, ends in 2030 so call it 5,000 trading days. Let's imagine the s-t VIX index has normally distributed returns with a stdev of 3% (very generous!). Ignoring fees and accruals you get a chart like this: 
or maybe this: 
And if you bump the standard deviation up to 5%, this: 
But wait, they did all these simulations for you in the prospectus!
The index goes up 478%, you lose 71% of your money: 
The index goes up a ton, you lose it all: 
But here is my *absolute* favorite table in maybe any prospectus. The index GOES DOWN by 99%. Remember, you have an INVERSE ETN. But if it is volatile enough you *still* lose 27% of your money. That's right, you bet against an index, it is all by annihilated, and you LOSE. /end 
Postscript: Credit Suisse accelerated XIV. It is done.
