What Is TVIX ETF?

• On volatility moves, TVIX returned 200 percent leverage, making it popular with individuals who want to bet against the market on a short-term basis.

How does the TVIX ETF function?

TVIX seeks to mirror the S&P VIX Short-Term Futurestm index twice as closely as possible on a daily basis (minus investor fees). This index maintains a hypothetical portfolio of the two VIX futures contracts that are closest to expiration. The index defines a new mix of VIX futures in that portfolio every day.

What took the place of TVIX?

It’s worth mentioning that TVIX was delisted rather than liquidated. It still exists and may be traded, but it’s now only available on the OTC market under the new ticker TVIXF.

Is it still possible to trade TVIX?

Without getting too technical, TVIX is an exchange-traded note, which means it functions similarly to a bond. Its redemption date is set for 2030.

That implies investors who own shares beyond the delisting date can simply wait for the note to mature in 2030 (at which point, according to Dave Nadig, “it’ll be worthless, virtually mathematically certain”) before selling them. Alternatively, they can exchange them in the unregulated over-the-counter market.

What To Expect Trading Securities In The OTC Market

Many people take for granted the inexpensive and quick execution, the large availability of buyers and sellers, and the general ability to trade period when trading shares on the NYSE or Nasdaq, for example.

Is it possible to purchase TVIX stock?

TVIX’s OTC price may rise above its IV price now that share creations have been suspended, depending on OTC demand and the availability of TVIX shares to borrow and sell to establish short positions. Because Credit Suisse is still redeeming (buying back) TVIX shares at the IV price, there is undoubtedly a floor price near the IV price. If there is a big discount, risk-free profits can be made by purchasing cheap TVIX shares then redeeming them with CS at the IV price.

If a premium price emerges, keep in mind that it might vanish in an instant if Credit Suisse decides to close the fund. In that situation, all owners will be able to pay out their shares at a final IV price.

Contact your broker if you wish to sell your TVIX stock. They might be willing to close out your shares without going through the OTC market at the end-of-day IV price. Credit Suisse is willing to cooperate with your broker to close out even one share lot for TVIX–though the fees may be significant.

The TVIX Exchange Trade Note from VelocityShares is a 2X leveraged vehicle that monitors short-term volatility.

The inner workings of TVIX will be discussed in this piece, including how it trades, how its value is determined, what it tracks, and how VelocityShares profits from it.

• The majority of the time, TVIX trades like a stock. Any time the market is open, including pre-market and after-market hours, it can be bought, sold, or sold short. Its liquidity is outstanding, with an average daily volume of 30 million shares and a bid/ask spread of a penny.
• TVIX shares, like stocks, can be divided or reverse split. Since its start in November 2010, TVIX has reverse split six times. Here’s a look at TVIX’s history of reverse splits, as well as my prediction for the next one.
• UVXY, a 1.5X leveraged Exchange Traded Fund from ProShares, is TVIX’s cousin.
• It used to be 2X leveraged as well, however following the volatility Tsunami on February 5th, 2018, it was deleveraged.
• Most IRAs and Roth IRAs can trade TVIX, but your broker will most likely want you to electronically sign a waiver outlining the numerous risks associated with this security. In an IRA, shorting any security is prohibited.
• Unlike stocks, TVIX does not entitle you to a portion in the company.
• There are no sales, quarterly reports, profit/loss, PE ratios, or the possibility of ever receiving dividends.
• On TVIX, forget about undertaking fundamental style analysis. Forget about technical style analysis, because the price of TVIX isn’t driven by supply and demand—a it’s small tail on the medium-sized VIX futures dog, which is controlled by SPX options (notional value > $100 billion).
• The value of TVIX is closely linked to twice the daily return of the S&P VIX Short-Term Futurestm, according to its prospectus.
• S&P Dow Jones Indices maintains the index. Every 15 seconds, the “intraday indicative” (IV) value of TVIX is reported, which is the potential value if it exactly tracked 2X the daily returns of the short term index. The TVIX ticker is used by Yahoo Finance to report this quote.
• If the trading value of TVIX diverges too much from the IV value, wholesalers known as “Authorized Participants” (APs) will interfere in the market.
• They start buying big blocks of TVIX if it’s selling below the IV value, which tends to drive the price up, and they short TVIX if it’s trading above the IV value.
• The APs have a deal with Credit Suisse that allows them to earn from these corrective actions, so they’re quite incentivized to maintain TVIX’s tracking in good form.
• In an ideal world, TVIX would follow the CBOE’s VIX index, which is the market’s de facto volatility measure.
• Because there are no direct investments that track the VIX, VelocityShares chose to track the next best option: VIX futures.
• VIX Futures are less volatile than the VIX itself; solutions (such as Barclays’ VXX) that hold unleveraged VIX futures often only move approximately 55% as much as the VIX. Volatility junkies are clamoring for more, which is why the 2X leveraged TVIX and the 1.5X leveraged UVXY exist.
• TVIX seeks to track the S&P VIX Short-Term Futurestmindex twice as closely as possible on a daily basis (minus investor fees).
• This index maintains a hypothetical portfolio of the two VIX futures contracts that are closest to expiration.
• The index defines a new mix of VIX futures in that portfolio every day.
• See this page for more details on how the index works.
• The tracking of TVIX to its target index is not as good as that of UVXY.
• I’ll explain why later in the piece, but on average, you pay a premium of about 1% to 3% for TVIX shares compared to the index they follow, compared to a premium of 0.25 percent for UVXY. This isn’t a significant concern for a volatile security like TVIX, but it’s worth noting.
• TVIX’s price isn’t just dragged down by the leveraging process. The VIX futures that are being used as the underlying have their own set of issues. Worst of all is the horrifying value degradation that occurs over time. Most days, both sets of VIX futures that TVIX measures fall short of the VIX, driving down TVIX’s underlying non-leveraged index by 7.5 percent every month on average (60 percent per year). Roll or contango loss is the term for this drag.
• TVIX typically loses 15% per month owing to a mix of losses from the 2X structure and contango (85 percent per year). This isn’t a long-term investment.
• TVIX, on the other hand, performs a good job of following the VIX’s short-term percentage changes. The chart below depicts historical correlations, with the linear best-fit approximation indicating that TVIX moves are roughly 93 percent of VIX moves. The data prior to TVIX’s launch on October 3, 2011, comes from a TVIX simulation I ran using the underlying VIX futures.
• The majority of individuals buy TVIX as a contrarian investment, expecting it to rise when the stock market falls.
• It performs a decent job of it, with the median TVIX percentage move being -4.8 times that of the S&P 500. However, TVIX has moved in lockstep with the S&P 500 18% of the time. So don’t accuse TVIX of being faulty if it doesn’t move the way you want it to.
• TVIX is usually a bad investment because to its irregular S&P 500 tracking and severe price erosion over time. Even the provider’s marketing, who you’d think would come up with a good spin, say, “The long-term expected value of your ETNs is zero.” You will lose money unless your timing is exceptional.
• Credit Suisse, TVIX’s issuer, charges a daily investor fee of 1.65% per year on TVIX’s assets on an annualized basis.
• This charge earns about $15 million each year, based on current assets of around $900 million.
• That should cover TVIX’s costs and make them successful, but I’m guessing their business model includes money from sources other than the investor fee.
• VelocityShares (now owned by Janis Capital Group) is compensated for its marketing and branding activities with a percentage of the investor fee.
• Unlike an ETF, the Exchange Traded Note structure of TVIX does not compel Credit Suisse to disclose what it plans to do with the money it receives in exchange for generating shares.
• The note is listed on their balance sheet as senior debt, although they do not pay interest on it.
• Instead, they undertake to redeem shares that the APs return to them based on the index’s value, which is approaching zero.
• to cover all of their liabilities Credit Suisse might carry the appropriate number of VIX futures contracts, but they almost definitely don’t because there are less expensive options (such as swaps) for reducing risk. Given TVIX’s inevitable descent towards zero, it could be tempting for Credit Suisse to take a chance and not completely hedge their TVIX investment, but I doubt Credit Suisse’s corporate culture would allow that. Instead, I believe they put non-hedging fund assets to work earning interest on reasonably secure investments like as collateralized repurchase agreements. Even a 1% or 2% increase in annual revenue on a $900 million investment is significant.
• In February 2012, TVIX’s assets grew quickly, reaching several hundred million dollars in a matter of days to $691 million. Normally, an ETN’s issuer would consider this a positive development, but Credit Suisse was not pleased. Positions must be rebalanced daily with a daily resetting fund like TVIX, and with a 2X leveraged fund, the position adjustments required are equal to the day’s percentage move times the asset value of the fund. So, if TVIX rose 30% in a day, which is not unheard of, and the assets were $690 million, an additional $207 million in hedging securities would need to be purchased at the VIX Futures market close that day. We don’t know why, but it’s likely because of the price of executing such hedging or the possibility of a swap’s counterparty defaulting. On February 22, 2012, Credit Suisse decided to halt issuing additional TVIX shares. The fund’s assets were unable to grow any larger as a result of this.
• You would imagine that limiting the number of shares in an ETN would benefit shareholders since shares would become more valuable if they were rare. However, this is a really terrible thing for exchange-traded goods. The technique for creating shares is critical to the fund’s ability to closely track its underlying index. Authorized participants will typically short TVIX and hedge that position with VIX futures-related assets to lock in a risk-free profit if its value rises too high relative to its index. They’ll keep shorting TVIX until the price difference between it and the index becomes too small for this arbitrage transaction to be lucrative.
• Short selling necessitates the availability of borrowable shares, and since Credit Suisse no longer creates new shares, the supply of borrowable shares has totally dried up. As a result, the value of TVIX’s stock decoupled from its index, and by the end of March, it was trading at a 90% premium to the index. In terms of market capitalization, TVIX had a fictitious worth of about $277 million.
• Credit Suisse resumed share formation in late March 2012, and the TVIX premium vanished almost instantly, leaving many shareholders startled and poorer. Credit Suisse’s response to the problem was to shift more risk to approved participants by requiring them to produce the required security before creating shares. The additional expense of doing so is reflected in TVIX’s pricing premium (typically approximately 1%) over its index.

The race to zero on TVIX attracts a large number of short sellers. That method works most of the time, but be prepared to handle a 4X or more increase in TVIX’s value if you expect to ride out any volatility along the way. The majority of people are unprepared, both financially and emotionally, to deal with such a turn of events. Please read Is Selling TVIX Short the Perfect Trade if you are considering selling TVIX short.

Although TVIX has a track record as a cash burner, its periodic upward jumps continue to draw speculators seeking to profit from the wider market’s misery.

Long on TVIX, a few traders with great timing or good luck will make a lot of money.

The majority of people will lose money.

Is it possible to lose more money than you put into TVIX?

It is highly feasible to lose all of one’s money if one holds long positions in TVIX for a long time. Your ETNs’ long-term projected value is zero. If you invest in ETNs for the long term, you are likely to lose all or a significant portion of your money – TVIX Prospectus.

Will TVIX be reinstated?

TVIX, along with numerous other leveraged ETNs in Credit Suisse’s VelocityShares line, will be permanently withdrawn and removed from exchanges in June 2020.

“As part of its ongoing effort to monitor and manage its suite of exchange-traded notes, Credit Suisse AG has chosen to delist the foregoing ETNs in order to better align its product line with its larger strategic growth ambitions,” according to the business.

Is it possible to short VIX?

• Its value tended to rise during severe market downturns, earning it the moniker “Fear Index.”
• For those who shorted it (shorting is a bet that an investment will drop in price — thus if you short the VIX, you win money when it goes down and lose money when it goes up), it was a major source of riches. The VIX was so popular as a trade that it even has its own subreddit.

What went wrong with TVIX ETF?

The VelocityShares Daily 2x VIX Short-Term ETN (TVIX) has reached the end of its life cycle.

The ETN’s issuer, Credit Suisse, revealed today that it planned to delist it, along with several others, to “better align its product suite with its larger strategic growth ambitions.” New issuances will be halted, but existing shares will remain available on the over-the-counter (OTC) market.

Tvix is taxed in various ways.

ProShares was the first provider of volatility-based exchange-traded funds (ETFs). All of Barclays’ earlier volatility entries (e.g., VXX & VXZ) were Exchange Traded Notes (ETN). For more information on how these types of securities function, click on the highlighted ETF / ETN. Proshares has done well in the volatility ETP category and currently has the most assets.

UVXY (1.5X long) and SVXY (-0.5X inverse daily percentage long) follow the SPVXSP index, which is a blend of the two next-to-expire VIX futures with a 30-day effective expiration time. Because these funds are so huge, their bid/ask spreads and liquidity characteristics are excellent.

• Because UVXY and SVXY possess VIX futures specifically, the IRS considers them partnerships that must submit K-1 forms for taxable accounts at tax time. The tax status of the VelocityShares ETN is the same as that of conventional equities. On the website of ProShares (point 1), they explain:
• With volatility, commodity, currency, and managed Futures ProShares will invest in a variety of derivative products, such as futures and forward contracts, according to K-1 filing. Open futures positions will generally be marked to market, with capital gains and losses being reported on a Schedule K-1. Depending on the nature of a contract, the reporting of gains and losses may differ. If you have held ProShares volatility ETFs, you may learn more about K-1 tax reporting and how to view your K-1 reports online here.
• This profit (loss) falls within the 1256 contract category. Regardless of how long you held the shares, these usually result in 60 percent long-term and 40 percent short-term gains/losses on your tax return.
• Credit risk: ETFs have a lesser credit risk than ETNs because they hold the underlying futures and swaps contracts that track the index.
• With ETNs, you’re effectively relying on a single corporation (in this case, Barclays) to pay their debts. Barclays is a large bank with a strong credit rating, so I believe the risk is low. For further information, see ETN Credit Risk.
• Termination risk: In the prospectus for ProShare’s funds, there is no mention of termination criteria other than the generic “we can terminate whenever we choose” provision.
• It would require more than a doubling of volatility on the long side (e.g., VXX) to wipe out the short side with a -0.5X short daily percentage volatility fund.
• ProShares, I believe, would terminate SVXY rather than allow its NAV to fall below zero.

Volatility Tickers has a comprehensive list of accessible volatility ETFs and ETNs, as well as links to relevant indexes and information.