Seeking Alpha

David Gille attempts to explain the collapse in the 2X VIX ETN (TVIX -27.6%) even as the VIX ETF...

David Gille attempts to explain the collapse in the 2X VIX ETN (TVIX -27.6%) even as the VIX ETF (VXX +2.7%) surges. Unlike ETFs, an ETN in certain instances can have little correlation to the index it is tracking, so selling/buying can drive it far from underlying value. The TVIX premium to NAV got far too high, and now is correcting.
Comments (30)
  • It still has a long way to go!
    22 Mar 2012, 03:56 PM Reply Like
  • Nope, its now getting close to NAV.
    22 Mar 2012, 04:46 PM Reply Like
  • to even allow this kind of why the volumes are way down..and no one is invested in the markets anymore....its just a bunch of crooks running the show...
    22 Mar 2012, 04:07 PM Reply Like
  • That's right. And to think we're at record low volume AND that's including 70% daily volume from HFT. Take away the HFT and the market might as well shut down. I suspect it will only take a few bad weeks of losses and what's left of the retail investor will also flee. Too much downside risk for little to no upside.
    22 Mar 2012, 04:49 PM Reply Like
  • How is this not arbitraged away??
    22 Mar 2012, 04:32 PM Reply Like
  • There's no way to arbitrage between the VIX index and VIX futures because the index is just a statistical value implied from option prices. It's not like the S&P 500 where the sum of the parts must add up to the whole.
    22 Mar 2012, 04:50 PM Reply Like
  • I was just thinking between VXX and TVIX. Something like buying .66 of VXX and shorting .33 of TVIX.
    23 Mar 2012, 09:05 AM Reply Like
  • This instrument does not reflect positively on Credit Suisse. I have not looked at the prospectus in a while but was this even identified as a risk factor?
    22 Mar 2012, 04:37 PM Reply Like
  • My thoughts exactly. CS just did a major dis-service to its customers by allowing this. They should have halted this until new shares were issued, or just delisted it completely. It should be viewed as a hedging instrument, but obviously was not tracking underlying NAV. Its anyone's guess what/who caused this to suddenly drop by almost 1/3 in one day on no news. Somethings fishy. I'm one of the muppets that took the 30% hit today. About time to walk away from this "market" all together.
    22 Mar 2012, 04:53 PM Reply Like
  • Most definitely did CS identify this as a risk factor. They were very clear as to what could/would happen to this ETN. I did read the Prospectus, as sent to me by my broker Ameritrade, and had full knowledge of the dangers. And decided to no longer invest in this instrument of mass destruction.


    How do we invest/trade responsibly if we don't read the information given us? I for one will be very careful when dealing with any ETN in the future.


    Or are we really just 'muppets'?


    22 Mar 2012, 11:23 PM Reply Like
  • J 457,


    We, the 'muppets' caused this instrument to get too far above NAV with our own 'irrational exuberance'. This ETN is not connected to reality when we buy it without knowledge that it really has NO underlying.


    Don't walk away...just read the prospectus next time.


    Go with an ETF. Far safer.


    22 Mar 2012, 11:33 PM Reply Like
  • We're muppets. Now we all know CS decided to issue shares- of course they announced after the close today. But some people knew in advance as the insider information leaked out before the official announcement, thereby crushing this 30% during trading hours. CS is to blame for this leak. The bums should be shut down and whoever leaked the info should be thrown in jail.
    22 Mar 2012, 11:35 PM Reply Like
  • I took at 30% hit today as well.... you're not alone
    23 Mar 2012, 05:48 AM Reply Like
  • The NAV value is currently at $7.79^tvix-iv;range...


    Over the last 3 days the NAV has declined swiftly. Major hedge funds pulled the trigger today to sell TVIX - however, with all that being said it is still trading about 15-20% above its NAV so not really much has changed as far as premium to the actual value now that the trading took place today. For it to continue to decline much more it would have to lose more NAV - or it could lose all premium and equalize with the NAV though based on its history this is not likely. The real question is why did the hedge funds wait until today and not sell it off yesterday or the day before when the NAV had already dropped so much. Do they have to give some 1 day notice before a large liquidation or what?
    22 Mar 2012, 04:57 PM Reply Like
  • All good points, but as you say, the real question is what triggered the massive sell-off today. Why selling in one day and not over several days. If CS announces new shares being issued next week then clearly inside information was shared and that was the sell-offs catalyst.
    22 Mar 2012, 06:08 PM Reply Like
  • No, the real question is why did we continue buying TVIX after we received the prospectus from our respective brokers... saying these products are designed to go to zero (without reverse splits) ? Are we really 'muppets', or 'sheeple', or 'slaves'?


    Do we really not understand the 5 principles... ...or do we just blame the banksters when things go wrong? Banksters are scum. But we know that.


    No, the real question is...when do we take responsibility for our own decisions.


    Don't buy ETNs...and they will fold. Simple. Period.


    23 Mar 2012, 12:33 AM Reply Like
  • I don't argue the risk. What annoys me is clearly some people had inside knowledge of the impending new share issuance. Someone leaked this inside information prior to it being made public. Now, if the ETN had initially plunged today after last nights announcement- well that's expected. But to plunge before the announcement seems to indicate someone knew something. That's where my frustration lies.
    23 Mar 2012, 01:06 PM Reply Like
  • TVIX came crashing down as I knew it would. The kicker is having both Legs win. That rarely happens. Most TVIX Longs were in Xanadu state of mind thinking that this would pay off handsomely.


    Well it did.... just not for you at least for today.


    TVIX = "The Valuation Is Xanadu"


    22 Mar 2012, 05:26 PM Reply Like
  • A few made a killing today, but most all were fleeced.
    22 Mar 2012, 06:09 PM Reply Like
  • NAV still around $7.5. Somebody was able to borrow shares today...
    22 Mar 2012, 06:27 PM Reply Like
  • This not a VXX tracking error , or even an extremely bad job at tracking the VXX


    This is gross negligence on behalf of Credit Suisse which will damage all ETF's once this goes public.


    I wouldn't be surprised to see a class action suit no matter what their fine print says -- No one signed up for this
    22 Mar 2012, 07:32 PM Reply Like
  • TVIX is not an ETF. It is an ETN. And there is a huge difference. All muppets should know the difference. Next time read the prospectus that your broker sent you.


    And stop whinning. Unless you want cheese with that whine.


    22 Mar 2012, 11:41 PM Reply Like
  • I'm usually one of those who get screwed by these things. For once I was spared.
    Bought a lot of TVIX towards the end last week as it looked like it had put in a double bottom. Over the weekend I read on Seeking Alpha that it was trading at a premium to it's NAV and why. Yesterday the $VIX was down a little but VXX and UVXY were down hard again. Thought it was a good sign that TVIX didn't loose nearly as much but realized that the premium to it's NAV was probably that much larger. Decided to sell all of my TVIX by the end of yesterday with a very small profit. Saw the $VIX up premarket and TVIX and was kicking myself this morning for having sold. By the end of today I was feeling much better. I only wish I had done the pairs trade that I had contemplated: long UVXY and short TVIX. Those who took advantage of that arbitrage made out rather handsomely today.
    23 Mar 2012, 09:39 AM Reply Like
  • So being one of those muppets that just got absolutely fleeced, what can we expect out of TVIX going forward? Is the price going to stay near this $8 NAV for awhile or is there something out there that can drive this thing higher?
    23 Mar 2012, 11:28 AM Reply Like
  • Yes, I would appreciate any informative replies to Jdawg147's question. This thing isn't just tracking air is it? It has to have some connection to 2x volatility (put:call ratio), correct? Can it turn back up if volatility should suddenly increase?


    Also, all ETNs will eventually go to zero, so this is not news, but isn't that due to accumulation of decay? What is the near-term future of TVIX?
    24 Mar 2012, 03:25 AM Reply Like
  • Need a little help. Long time investor in stocks since 1987. Trying a new product that I really do not understand and may should have stayed out, the VXX. From advice I purchased 100 shares this week when it hit a 52 week low and then on Friday got 100 more shares when it hit another 52 week low. Now in general you know that works sometimes very well with good stocks. Now my questions are: Like stocks should I purchase more with a reasonable decline in price, sell and get out, hold what I got, day trade the product, or move to another product. Now all of you that commented ahead of me seem to have great experience and general knowledge in these types of product and any advice will be greatly appreciated. Good Luck!
    24 Mar 2012, 06:16 PM Reply Like
  • VOL FAN and others,


    Search TVIX.....Paulo Santos, Bill Luby and others here on SA for the answers you seek. This is what Morningstar says.....


    Remember, UVXY was about $5.30, reverse split to $32ish, and is now down again to $16ish. Yup, cut in half. Do not hold a Vix product for more than a day, for the 'Vixen' can stay in her burrow a long time. Years. And all the while 'decay' is working against you, driving you to zero. And that's per the prospectus.


    Waiting for that first bomb into Iran can be a long, futile, wait. Put your money to better use.


    25 Mar 2012, 01:21 PM Reply Like
  • Thanks a million for your time and advice. Greatly appreciated. Good Luck!
    25 Mar 2012, 01:25 PM Reply Like
  • If you're a long time investor since 1987, you must be doing pretty well to still be in the game.


    But if you're a vol fan and haven't won jack in two decades, and you fully grasp the concept that no matter how much money is spent on shady coaches and bribing recruits, that no stop-loss order in the world will prevent an 11-game losing streak to Alabama and Florida from continuing ad infinitum, then there are just some kinds of pain that cannot be relieved no matter what kind of fortune you make trading the markets. Good luck!
    26 Mar 2012, 12:51 AM Reply Like
  • Nolessince87: Yes, I have done very, very well thank you. I always hate to open up this great web site to converse with my many friends and many a solid good investor that has helpd me out since March 9 2009 to find such a sorry comment that you just wrote at 12:51 AM. If you would have taken a few seconds to check my bio before you fired off that insult you would see that I am not even from Tennessee and Vol Fan has nothing to do with Tennessee football. Look lets do this. If I told you where I really lived you may, but probably not, would be surely ashamed that you wrote what you just put out. My closest know who I am and where I live and what I did when I got a regular pay check. I will let them deal with you as I really need to focus my day on trying to help others and maybe if I have time help myself. Please try and remember this is a solid financial web site and your comments were intended I think more for CBS Sportsline. Now if you want to take me on in my back yard. GAME ON!
    26 Mar 2012, 08:01 AM Reply Like
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