WEDNESDAY, MARCH 7, 2012
Is TVIX Now Just a More Docile UVXY?
Today is the eleventh trading day since Credit Suisse (CS) announced a suspension of new creation units in the VelocityShares Daily 2x VIX Short-Term ETN (TVIX) after the close of the regular trading session on February 21.
In the interim, all manner of investors, pundits, industry players and members of the media have attempted to grapple with the implications of this move for TVIX, for the broader class of VIX exchange-traded products (ETPs) and even for the VIX futures market as a whole.
One of the more thought-provoking perspectives on TVIX and the VIX futures market came from Dave Nadig and Gene Koyfman of Index Universe in Volatility ETFs Own All VIX Futures, which I consider to be required reading. The potential implications of the VIX ETP tail wagging the VIX futures dog were nicely summarized by Izabella Kaminska of the Financial Times, wh0 wondered, Time for Position Limits on VIX Futures?
While I find the regulatory, exchange and internal risk management issues that have been raised by the TVIX creation units halt to be interesting fodder for contemplation, I am much more interested in understanding how the market disruptions have changed the manner in which some securities move and the trading implications of these changes.
In the graphic below, I have plotted the daily moves for TVIX, UVXY and the S&P 500 index over the course of the last ten trading days. In short, while it initially appeared as if TVIX was holding up much better than UVXY as the market declined, now it appears as if TVIX is also much more sluggish to the upside as well. While TVIX has outperformed UVXY during the last ten days, the most compelling explanation for disconnect between TVIX and UVXY is that the new market environment has substantially lowered TVIXâs beta. In other words, TVIX now lives more in the realm of (+1x) VXX than (+2x) UVXY â and much closer to VXX at that. During the last ten trading days, UVXY has a 10-day historical volatility of 117, while VXX has a 10-day historical volatility of 60. And TVIX? Well, during this period TVIX has been even more docile than VXX, with historical volatility reading of only 45.
For now at least, TVIX appears much less prone to spiking than I would have expected. This does not, however, rule out the possibility of a TVIX short squeeze sometime in the future. Buyers â and sellers â beware.
FRIDAY, FEBRUARY 24, 2012
The Story of VIX ETPs Relative to their Intraday Indicative Values
This week has seen an explosion of interest in the VIX exchange-traded product (ETP) space, most of which has been due to the suspension by Credit Suisse (CS) of creation units (think ânew sharesâ) in the VelocityShares Daily 2x VIX Short-Term ETNs (TVIX).
For those who are late to the story and/or would like some background, the links below should suffice, but for today I am interested in some data that might indicate how much stress there is in the market for TVIX shares, for VelocityShares products other than TVIX and for a ProShares product that is similar to TVIX, but is an ETF rather than an ETN: the ProShares Ultra VIX Short-Term Futures ETF, UVXY.
For this analysis, I have evaluated the prices of a handful of VIX ETPs relative to their Intraday Indicative Value (a real-time estimate of an ETPâs fair value, based on the most recent prices of its underlying securities) for the last week. The graphic below shows the premium for five VIX ETPs as a percentage of their indicative values, normalized to a 100 point scale.
The chart shows that prior to the suspension of new creation units in TVIX after the close of regular trading on Tuesday, February 21st, these VIX ETPs generally traded very close to their indicative values. In fact, the norm for the long ETPs (TVIX, UVXY, VXX and VIIX) was to trade at a slight premium to the indicative value, generally less than 1% higher. By contrast, the one inverse ETP on the list, XIV, tended to trade at a slight discount to indicative value, again, generally less than 1%.
Once Credit Suisse closed the door for new creation units, the price of TVIX has drifted steadily higher relative to its indicative value, even trading at a 20% premium just a few minutes ago.
In terms of other market dislocations, however, the evidence is not compelling. UVXY, which is an excellent substitute for TVIX, doubled its prior record volume yesterday and is on schedule to top that today, but after seeing a slight lift in the premium relative to indicative value, UVXYâs premium is now back to historical norms.
Looking at some of the other VelocityShares products, the two next most popular after TVIX are XIV and VIIX. Here again, there have been some minor fluctuations since the Credit Suisse announcement, but nothing that has pushed these products more than 1% away from their indicative value.
Based on the indicative value data, then, so far the only market dislocation has been in the TVIX product, with no evidence of a spread to competing products (UVXY) or other products in the VelocityShares stable, such as XIV or VIIX.
Related posts: credit bill luby
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