Shares of the Velocity Shares Daily 2x VIX Short Term ETN (TVIX) are up sharply today as global stock markets sell off and the VIX rallies. However, holders should use this lift as a chance to exit TVIX.
TVIX is bouncing back from the over 60% drop in 5 trading sessions that sent shares to a low of $5.84 from over $15. While the TVIX is doing what it should today, over the medium/long-term TVIX is a sure money loser.
From the TVIX prospectus:
If you hold your ETN as a long term investment, it is likely that you will lose all or a substantial portion of your investment
The reason TVIX will lose money over the long-term is the contango in volatility futures. TVIX is constantly forced to "roll" its contracts, this means selling lower priced VIX futures contracts to buy higher priced VIX futures.
VIX Futures Prices
- April: 16.89
- May: 18.80
- June: 20.55
- July: 22.05
For those who wish to bet against the stock market, there are better ways to do it than buying TVIX. Some superior ways to bet against the market include buying put options, selling shares you already own, and buying inverse ETFs such as ProShares Short S&P 500 (SH) or ProShares Short Dow 30 (DOG).
Holders of TVIX should use the market sell-off as a golden opportunity to exit positions in TVIX.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.