The unexpected surge appealing in TVIX (VelocityShares Daily 2x VIX Short-Term ETN) managed to get the most greatly exchanged VIX exchange-traded product (ETP) on Friday, as TVIX vaulted within the former ruler of the mountain, VXX. Part of the selling point of TVIX is to retail investors who’ve embraced the product with surprising swiftness in the last fortnight.
Some of the appeal of TVIX is a function of its volatility: this is a product that jumped from 15 last August to over 109 in early October, earlier this month before falling only 13. Based on some of the questions I’ve received, additionally it is obvious than many new investors in TVIX don’t realize the product these are trading. First things first, for individuals who are not used to TVIX, make sure you understand what VXX is, why it has underperformed for days gone by three years and why it offers shortcomings both as a short-term and long-term investment. Generally, TVIX is the same as VXX, with 2x leverage.
I periodically get questions about whether TVIX, VXX, and some of the other VIX ETPs were “designing to go to zero.” This is not the full case. In fact, TVIX and VXX can be excellent products for those who wish to benefit from a short-term increase in volatility. It’s important to note that these products were made to be short-term trading tools only, with the expectation that they might have a much higher charm to institutional traders than to retail investors. Unfortunately, over a long-term time horizon, long positions in TVIX, VXX, and many of the other VIX ETPs will be a losing proposition. For individuals who doubt this, browse the prospectus for TVIX. “The long term expected value of your ETNs is zero. No. As is the entire case with a number of other VIX ETPs, should TVIX continue to drop in price, a reverse divide is going to be used to inflate the share price.
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