The ETN that's lost 99% of its value set to die this week

|About: Barclays PLC (BCS)|By:, SA News Editor

The iPath 500 VIX Short-Term Futures ETN (VXX -1%), which is sold by Barclays (BCS +0.5%), will mature as scheduled on Jan. 30, ending a popular way to bet on a gauge of expected gyrations in the S&P 500 Index.

There's the possibility of one last wave in the futures market, if Barclays is forced to liquidate its hedge for the close to $500M still invested in the note by 4 PM today, Bloomberg reports.

VXX is being replaced with VXXB (VXXB -0.9%), a note identical in just about every aspect except ticker and maturity date. Shifting assets and trading volume to the replacement, though, has proved slow.

If some traders worry about an erratic exit today, they could sell VIX futures or options before the close to front-run the expected effect of a large sale, or they could use spread strategies.

“The odds of a disruption are very low, but you never know, and there might be some people who are going to speculate on that,’’ said  Vance Harwood, president of Six Figure Investing.

Barclays is the largest owner of VXX, according to Bloomberg. The company lends out its shares to investors who want to that a short position against the VXX, earning a fee in return

The note will mature having lost over 99% of its value due to its rebalancing strategy, which involved selling front-month contracts to purchase second-month contracts to prepare for the contract's roll. With the VIX curve usually sloping up, since the longer the time period the more uncertain the outlook is for U.S. stocks, the roll eats into returns.

Previously: Credit Suisse to reduce daily investor fee factor on VIIX ETNs (Jan. 7)


Subscribe for full text news in your inbox