Market Overview

More Fun With TVIX: Still Above Indicative Value (TVIX, UVXY, VIIX)

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There's no denying today will go down as a day of infamy for the VelocityShares Daily 2x VIX Short-Term ETN (NYSE: TVIX). Falling almost 30% on nearly triple the average daily turnover when other comparable VIX ETNs are higher on the day can have a way of being damaging to an ETN's reputation.

As has been noted, VIX vehicles such as the iPath S&P 500 VIX Short-Term Futures ETN (NYSE: VXX) and the ProShares Ultra VIX Short-Term Futures ETF (NYSE: UVXY) closed higher today.

Adding to the insanity regarding TVIX, its unleveraged brother, the VelocityShares Long VIX Short Term ETN (NYSE: VIIX) gained 1.2% on volume that was nearly quadruple the daily average.

Here is what TVIX is supposed to do, according to its product page: The ETN "is linked to twice (2x) the daily performance of the S&P 500 VIX Short-Term Futures™ Index ER less the investor fee. The ETNs provide traders with an exchange traded instrument enabling them to efficiently express their market views on the short-term futures contracts on the CBOE SPX Volatility Index® (the “VIX”).

And this is what VIIX is supposed to do according to its product page: The ETN "is linked to the daily performance of the S&P 500 VIX Short-Term Futures™ Index ER less the investor fee. The ETNs provide traders with an exchange traded instrument enabling them to efficiently express their market views on the short-term futures contracts on the CBOE SPX Volatility Index® (the “VIX”).

Straight forward. VIIX does one thing and TVIX adds the juice of double leverage. So how did this situation arise? It all goes back to net asset value. The VelocityShares Web site indicates VIIX has less than 1 million shares outstanding and that the ETN trades at just a small premium to its net closing indicative value.

On the other hand, despite share creations in TVIX being halted last month, that ETN has over 40.7 million shares outstanding and the VelocityShares web site indicates that as of 4:45 PM Eastern Time, TVIX has an indicative value of $7.62. That means that even after a 30% decline today, TVIX is still trading at a large premium to its indicative value.

That also indicates more downside could be on the way for TVIX, which has an indicative value of $7.62 compared with with a closing price of $10.20 today.

 

Related Articles (TVIX + UVXY)

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