Exchange Traded Fund (ETF) Trading Strategies

Thursday, March 22, 2012

What happened to TVIX today?

TVIX and UVXY are both bear VIX ETFs and should look similar. But they are behaving like UNG and GAZ. There's something going on behind the scenes.

The VelocityShares Daily 2x VIX Short-Term ETN (TVIX), retreated 29 percent to $10.20 at 4 p.m. New York time, on volume that was 2.6 times the three-month average. Credit Suisse’s exchange-traded note closed at $14.43 yesterday, or 89 percent above its so-called indicative value, after falling 86 percent from its Oct. 3 peak as the Standard & Poor’s 500 Index rose 28 percent to the highest level since May 2008.

The gap between the security’s price and the value of the index it tracks has widened since Credit Suisse suspended issuance of new shares, causing a supply shortage amid record demand for volatility products that provide a hedge against U.S. equity losses. Short sellers may be accelerating bets against TVIX today on speculation Credit Suisse will permit issuance of more shares, said WallachBeth Capital’s Chris Hempstead.

“People are waiting for Credit Suisse or VelocityShares to come out and say what’s going to happen,” Hempstead, director of exchange-traded-fund execution services at WallachBeth in New York, said in a phone interview. “The trading community believes that they will be able to create these shares again in the near future, and if that’s the case then that’s why they are shorting it.”

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