Tag Archives: tvix

ETF News

Short TVIX: The Ultimate VIX Contango Trade

Leave a comment

ETF Edge pictureJune 19, 2012

Contango is Back

The volatility futures curve is back in strong contango, and with it an opportunity to profit from the short trade on volatility linked ETFs/ETNs. For a primer on this trade, see previous articles here and here, but in short it’s an attempt to profit from the bias of investors to believe that market volatility in the future will be greater than it is in the present – essentially a fear of the “unknown unknowns”.

A Better Way to Play

In the past, I have advocated the use of short (VXX) or long (XIV) as ways to profit from steep contango, but there is, in my opinion, a more compelling way to profit from contango, short (TVIX).

is a 2x leveraged version of the VXX which should, in theory, return 2x the daily gains or losses of VXX or similarly structured funds.

However, as many have observed the TVIX had a pretty wild ride this spring. For those not familiar with the fund, in February the fund’s sponsor Credit Suisse temporarily halted creation of new units of the fund in response to skyrocketing demand and ballooning risk exposure for CS. Halting the issuance of new shares broke the mechanism that tends to keep funds trading in line with underlying value, and in a tulip mania moment, the market bid the price up to an 89% premium to fair value in just a few weeks. About a month later, when the sponsor resumed issuing shares on a limited basis, shares traded down sharply and more in line with fair value. Continue reading →

ETF News, People Profiles

Hedge Fund ETF Weapons Turn Dangerous (?)

Leave a comment

By Christopher Condon on May 31, 2012

 

If you are convinced, really convinced, the price of crude oil will rise today and U.S. stocks will fall, Factor Advisors LLC has an exchange-traded fund for you.

The FactorShares 2X: Oil Bull/S&P500 Bear (FOL) (FOL) offered by the New York-based firm makes a two-times long wager on crude oil futures and a short bet on Standard & Poor’s 500 Index futures, in effect delivering twice the daily change in the spread between the two positions. The product’s birth followed “a lot of feedback” from institutional investors, including hedge funds, Stuart Rosenthal, chief executive officer of Factor Advisors, said in a telephone interview.

As the biggest ETF managers capture assets from traditional mutual funds with benchmark-tracking offerings, smaller competitors are catering to sophisticated investors with an increasingly complex arsenal of products. Often based on derivatives, these can be weapons for savvy investors to amplify wagers on rising or falling prices of everything from stocks and bonds to currencies and commodities. The same tools, readily available through conventional and online brokers, have proven hazardous for individual investors who sometimes misunderstand and misuse them with costly consequences. Continue reading →

ETF News, People Profiles

Better Take a Peak at China’s PEK..Premium Merchandise

Leave a comment

Courtesy of the ETF Professor at Benzinga.com

Following the March 22 debacle concerning the VelocityShares Daily 2x VIX Short-Term ETN (NYSE: TVIX  that saw the now infamous ETN tumble 30% in that one trading day, traders and investors predictably wondered what exchange-traded product could be next to fall victim to a similar scenario.

That scenario being an ETF or ETN trading at an elevated premium to its net asset or indicative value. One fund that has been noticed trading at elevated premium’s to its NAV is the Market Vectors China ETF (NYSE: PEK [6]) and this has been the case since the ETF debuted in October 2010.

What some investors may not understand is the reason why the Market Vectors China ETF has previously traded at premiums to its NAV that have been as high as 12%, sometimes a tad more. PEK is the only U.S.-listed ETF that offers investors exposure to China’s A shares market, but since foreign investors are limited in owning Chinese A shares directly, PEK uses swaps and derivatives instruments to accomplish its objectives.

Noteworthy is the fact that PEK’s premium has started to shrink, coinciding with news announced earlier this month that the China Securities Regulatory Commission boosted the quotas for qualified foreign institutional investors to $80 billion from $30 billion.

Chris Hempstead, head of ETF trading for New York-based execution firm WallachBeth Capital, talked about the implications increased access to China’s A shares for foreign investors may have on PEK in an exclusive interview with Benzinga on Friday.

Chris Hempstead, WallachBeth Capital

“PEK trading an elevated premium to its NAV in the past was not a function of it not being able to create and redeem shares as was the case with TVIX,” Hempstead said. “There are completely separate reasons why PEK’s NAV has been elevated compared to TVIX and some of the other products.”

Hempstead explained that it is the process by which PEK accesses China’s A shares market that has led to the high premium to its NAV in the past. Continue reading →

ETF News

FINRA Investigating ETNs after Credit Suisse’s TVIX ‘Snafu’

Leave a comment

The regulator that oversees the sale of investment products to investors is investigating how firms are marketing exchange-traded notes, a niche product that experienced a market meltdown this year.

A spokeswoman for the Financial Industry Regulatory Authority said Thursday the regulator is “looking at the events and trading” activity surrounding a sharp plunge in the price of an exchange-traded note designed to track stock market volatility.

FINRA began its inquiry after the Credit Suisse-managed VelocityShares Daily 2x Short-Term exchange-traded note, or ETN, lost half its value in just two days earlier this month.

But FINRA’s review is not limited to the volatility ETN, the spokeswoman said. “We have a review underway looking at a host of issues relating to ETNs and other complex products,” the spokeswoman said.

Exchange-traded notes are debt securities issued by banks and were first brought to market in 2006 as a way for sophisticated traders to make bets on different parts of the market.

But recently, retail investors have begun trading ETNs as one way to get exposure to popular sectors of the market like silver, gold and natural gas.

To be sure, the dollar value of ETNs is small, roughly $18 billion. The volatility ETN managed by Credit Suisse, for instance, had about $700 million in assets at its peak. By contrast, the dollar value of better-known exchange-traded funds, or ETFs, is $1.2 trillion.

ETF News

TVIX: Case Study ETNs & ETFs to be Wary Of-

Leave a comment

Credit Suisse’s volatility-flavored ETN,  the VelocityShares Daily 2x VIX Short-Term ETN, aka “TVIX” is, for lack of a better phrase, broken.  And it ‘got broken’ in mid Feb when CS halted the creation process for this product.

Observed Chris Hempstead, the head of ETF trading for WallachBeth Capital, “the halt in the creation process caused the product to trade at an unnatural premium–as much as 80%– to the underlying NAV since the creation halt announcement was made.  For more than a month, hedge fund traders have been attempting to arbitrage the dislocation in pricing-and more than a few had based their strategies on the premise the creation process would not be resumed.  ”

Credit Suisse threw a fly into that ointment on Thursday night, when the firm announced it was re-opening the issuance of new units and, as Hempstead pointed out in desk notes to clients of his firm late Thursday night, “you can expect TVIX premiums to NAV to evaporate significantly, if not entirely when trading re-opens.”

Are there other products that display the same  unusual premium to NAV ‘features’?. Hempstead suggests that hedge fund traders who are dabbling in volatility-flavored products should take a second look at Market Vectors China ETF (PEK)  as well as ProShares Trust Ultra VIX Short:  UVXY Continue reading →

ETF News

ProShares To Reverse-Split VIX ETF UVXY

Leave a comment

 

Courtesy of IndexUniverse, reporting from Oliver Ludwig:

ProShares, the fund company known for its large family of inverse and leveraged ETFs, set a 1-for-6 reverse split on its now-super-popular VIX-related ETF “UVXY” to ensure that bid/ask spreads on the security don’t grow too large as a percentage of its declining share price.

The fund, the double-long ProShares Ultra VIX Short-Term Futures ETF (NYSEArca: UVXY), has been in the news since last week, when its popularity began soaring in the wake of Credit Suisse’s decision to halt creations of the VelocityShares Daily 2X VIX Short-Term ETN (NYSEArca: TVIX)—an exchange-traded note that delivers similar exposure to the VIX volatility curve as UVXY.

The decision to do a reverse split on UVXY isn’t related to the explosion of interest in the ETF, but is a function of the downward pressure on VIX futures over the past several months. UVXY was worth more than $34 a share when it came to market in October of last year, and it’s now trading at $5.60, according to Google Finance. It has lost more than half its value since the beginning of the year.

Even though UVXY often trades with a bid/ask spread of just 1 cent, that penny becomes a more conspicuous trading cost the cheaper the ETF becomes. The 1-for-6 reverse split, effective March 8 for shareholders of record as of the close on March 7, will pump up the share price about six times and cut the number of outstanding shares by about the same amount.

At today’s price, UVXY, now the only double-long exchange-traded product that’s taking in new money, would be worth more than $33 a share on a post-split basis. Continue reading →