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Credit Suisse Publicly Announces Reopening Of TVIX Share Issuance, Hours After 'Private' Leak Crushes TVIX

Tyler Durden's picture





 

For those curious why it is that the TVIX experienced a 50% plunge earlier today, as described here, perhaps the question should be directed to the SEC who may be better suited to answer just who, when and why had advance knowledge of Credit Suisse's announcement, after the close, that it would "reopen issuance of the TVIX." And since this is a rhetorical question, perhaps a better one is why does one participate in a market in which the fine print is always ignored, and is always used against the retail investor. Not that there is anything wrong with that of course - after all caveat emptor. Especially when none other than one of Ben Bernanke's favorite scholars on shadow banking (i.e., forced complexity) Gary Gorton said the following: "Liquidity requires symmetric information, which is easiest to achieve when everyone is ignorant. This determines the design of many securities..." Alas, when it comes to novel instruments such as levered ETFs that work as a closed end mutual fund hybrid, except when they don't, the only one ignorant is you, dear retail investor. Cost to your P&L: 50% in one day. Finally if for some inconceivable reason that doesn't work, just call the Credit Suisse ETN desk at 212 538 7333.

From Credit Suisse

Credit Suisse Plans to Reopen Issuance of VelocityShares Daily 2x Long VIX Short-Term ETN (Ticker Symbol: “TVIX”) on a Limited Basis

 

New York, March 22, 2012 Credit Suisse announced today that it plans to reopen issuance of the VelocityShares Daily 2x VIX Short-Term ETNs (Ticker Symbol: “TVIX”) on a limited basis. The ETNs were temporarily suspended from further issuance by Credit Suisse on February 21, 2012 due to internal limits on the size of the ETNs. At present, the ETNs are trading at a premium to their indicative value.

 

Beginning March 23, 2012, Credit Suisse may from time to time issue the ETNs into inventory of its affiliates to make the ETNs available for lending at or about rates that prevailed prior to the temporary suspension of issuances of the ETNs. Also, beginning as soon as March 28, 2012, Credit Suisse may issue additional ETNs from time to time to be sold solely to authorized market makers. Credit Suisse may condition its acceptance of a market maker’s offer to purchase the ETNs on its agreeing to sell to Credit Suisse specified hedging instruments consistent with Credit Suisse’s hedging strategy, including but not limited to swaps. Any such hedging instruments will be executed on the basis of the indicative value of the ETNs at that time, will not reflect any premium or discount in the trading price of the ETNs over their indicative value and will be on terms acceptable to Credit Suisse, including the counterparty meeting Credit Suisse’s creditworthiness requirements, margin requirements, minimum size and duration requirements and such other terms as Credit Suisse deems appropriate in its sole discretion. This action does not affect the Early Redemption rights of noteholders as described in the pricing supplement. The other ETNs issued by Credit Suisse are not affected by this action.

 

As disclosed in the pricing supplement relating to the ETNs under the heading “Risk Factors—The Market Price of Your ETNs May Be Influenced By Many Unpredictable Factors,” the market value of the ETNs may be influenced by, among other things, the levels of supply and demand for the ETNs. It is possible that the reopening of the ETNs on a limited basis, as described above, may influence the market value of the ETNs. Credit Suisse cannot predict with certainty what impact, if any, the reopening described above will have on the public trading price of the ETNs. It is possible that the resumption of new issuances of the ETNs, even on a limited basis, could reduce or remove any premium in the trading price of the ETNs over their indicative value. Investors are cautioned that paying a premium purchase price over the indicative value of the ETNs could lead to significant losses in the event the investor sells such ETNs at a time when the premium is no longer present in the market place or the ETNs are accelerated (including at our option), in which case investors will receive a cash payment in an amount equal to the closing indicative value on the accelerated valuation date.

 


And just because there are never enough gullible gambling addicts out there, now that the TVIX is dead, presenting the VVIX. 

March 14, 2012
CBOE Introduces "VIX of VIX" Benchmark Index: Provides a Gauge for Measuring Volatility of the VIX Index Itself 
CHICAGO and BOCA RATON, Fla., March 14, 2012 /PRNewswire/ -- The Chicago Board Options Exchange (CBOE) announced today that it began publishing values for the CBOE "VIX of VIX" Index (ticker: VVIX(SM)) this morning.

As its name implies, the CBOE's VIX of VIX Index tracks the volatility of the CBOE Volatility Index (the VIX Index), the world's most widely-followed market volatility index.

 

"Volatility traders are intrigued with the ability to formulate new strategies based on the relationship between the VIX Index and the volatility of the VIX Index," CBOE Chairman and CEO William J. Brodsky said. "The fact that our customers were looking for a way to measure the volatility of the VIX shows just how far the VIX Index has come. We're thrilled to introduce a product that tracks the volatility of the world's most- watched volatility index."     

 

VVIX reflects the market's consensus of expected volatility of the 30-day forward price of the VIX Index and provides new information for investors looking to formulate trading strategies based on the relationship between the VIX® Index and the volatility of the VIX Index.

 

The Index offers investors a way to gauge the risk premium in VIX Index option prices, much like the CBOE's VIX Index reflects the risk premium in S&P 500 Index options (SPX) prices.

 

VVIX is calculated using the same methodology as the VIX Index, which is derived from the price of a portfolio of out-of-the-money VIX option puts and calls.

 

CBOE, known as the home of volatility indexes, currently publishes data on two dozen volatility-related benchmarks and strategies. In addition to the CBOE "VIX of VIX" Index, since early 2011 CBOE has added 12 volatility indexes and one volatility strategy index, and CBOE and CBOE Futures Exchange (CFE) have collectively added  six new volatility products.

 

VVIX chart

Finally, just in case there is any confusion how this crying game would end, here is what we said about the TVIX at its launch in November 2010. You were warned.

Presenting The TVIX: A Double Leveraged VIX ETF

Ever feel like this market just does not provide enough unique and suicidal ways for you to lose your hard stolen money within nanoseconds of trade execution? Never fear - here comes the TVIX, a levered third derivative bet on volatility: simply said, the TVIX will be the world's first double leveraged VIX ETF. According to the ETF creator, VelocityShares, "the TVIX and TVIZ ETNs allow traders to manage daily trading risks using a 2x leveraged view on the S&P VIX Short-Term Futures™ Index and S&P 500 VIX Mid-Term Futures™ Index, respectively, while the XIV and ZIV ETNs enable traders to manage daily trading risks using an inverse position on the direction of the volatility indices. The indices were created by Standard & Poor's Financial Services LLC, a division of the McGraw Hill-Companies, Inc." Then again, why not just call these what they are: a novel way (brought to you via the synthetic CDO legacy product known as ETFs) to lose money with a 99.999% guarantee. As always, we wonder why anyone would trade this product, when, with much better odds, one would at least get comped in Vegas...

Here is the full product suite about to launched by Credit Suisse.

One has to love the fine print:

The ETNs, and in particular the 2x Long ETNs, are intended to be trading tools for sophisticated investors to manage daily trading risks.  They are designed to achieve their stated investment objectives on a daily basis, but their performance over longer periods of time can differ significantly from their stated daily objectives.  Investors should actively and frequently monitor their investments in the ETNs. Although we intend to list the ETNs on NYSE Arca, a trading market for the ETNs may not develop. 

In this case, and as in everything else related to the market, our advice is stay away from these synthetic contraptions which are merely CDOs (and now CDOs cubed) for public consumption. On the other hand, we can't wait for someone to finally release an ETF or any other mechanism, that allows for the simple shorting of GM stock.

 


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Thu, 03/22/2012 - 22:29 | Link to Comment wee-weed up
wee-weed up's picture

Markets of the elites... by the elites... and for the elites...

Thu, 03/22/2012 - 22:48 | Link to Comment SHEEPFUKKER
SHEEPFUKKER's picture

Thank you sir, may I have another. 

Thu, 03/22/2012 - 23:03 | Link to Comment Raymond_K_Hessel
Raymond_K_Hessel's picture

Boycott the rigged markets => Buy physical PM and wait for the collapse.

Fri, 03/23/2012 - 00:52 | Link to Comment redpill
redpill's picture

I don't know how anyone could look at a chart of that Frankenfund and acutally want to buy a piece of the monster.

 

Fri, 03/23/2012 - 01:40 | Link to Comment overbet
overbet's picture

So fucking corrupt. I mean I know elementary school children who could investigate and prosecute this bullshit better than the SEC.

Fri, 03/23/2012 - 06:26 | Link to Comment Harlequin001
Harlequin001's picture

So what's the problem, so all those insider dealers who thought they had fast track info got thrown a curved ball. So what.

Serves them right for even trying to trade such a corrupt market...

They should just buy gold...

Fuck 'em..

Fri, 03/23/2012 - 07:31 | Link to Comment NumberNone
NumberNone's picture

Clearly Goldman isn't the only place that views retail investors as Muppets.

Thu, 03/22/2012 - 22:48 | Link to Comment Savyindallas
Savyindallas's picture

these "elites" need to have their nuts cut off  -literally.

Thu, 03/22/2012 - 23:13 | Link to Comment JustObserving
JustObserving's picture

Rolling Stone
Gangster Banks Keep Winning Public Business. Why?
By Matt Taibbi
March 22, 9:40 AM ET

A friend of mine sent this article from Bloomberg, along with the simple comment: "Perfect." What's perfect? That the banks that have been caught repeatedly ripping off communities and munipalities -- banks that have paid hefty settlements for rigging bids, bribery and other sordid misdeeds -- keep winning the most public business. Apparently, our public officials aren't concerned about whom they hire to serve as the people's investment bankers.

http://www.rollingstone.com/politics/blogs/taibblog

The elites always win. Our corruption is complete. If the SEC and the CFTC are not aiding and abetting the criminal elite, they are busy watching porn.

Thu, 03/22/2012 - 23:08 | Link to Comment spankthebernank
spankthebernank's picture

It's funny to watch vxx faz etc...fall to single digits, then reverse split and do it all over again..unreal times people

Fri, 03/23/2012 - 12:44 | Link to Comment ZeroPower
ZeroPower's picture

TVIX is designed to go to zero. The worst part is, i am not at all being sarcastic.

Fri, 03/23/2012 - 06:41 | Link to Comment slaughterer
slaughterer's picture

Self-congratulation: I warned about this right here at ZH last week.

Some conservative retail brokers have been prohibiting trading in TVIX for months now. 

The TVIX forward split should be 1:10.

Fri, 03/23/2012 - 10:33 | Link to Comment 5880
5880's picture

Brodsky is such a nutsack

Thu, 03/22/2012 - 22:30 | Link to Comment XRAYD
XRAYD's picture

UnF*ingReal!  UFR!

Thu, 03/22/2012 - 22:34 | Link to Comment Bill D. Cat
Bill D. Cat's picture

Unfortunately for me , this one is personal .

Thu, 03/22/2012 - 22:38 | Link to Comment spankthebernank
spankthebernank's picture

Robbery in broad daylight

With fine print....

Fri, 03/23/2012 - 06:46 | Link to Comment LeBalance
LeBalance's picture

lol

step 1: you bought a paper asset.

step 2: it depreciated.

your reaction: I was robbed.

my reaction: see step 1.

your reaction: I was robbed.

my reaction: W.C. Fields: "It is a Crime to leave the sucker with a cent of their money."

Fri, 03/23/2012 - 07:19 | Link to Comment spentCartridge
spentCartridge's picture

I prefer, same author : "Never give a sucker an even break".

Fri, 03/23/2012 - 09:15 | Link to Comment Whatta
Whatta's picture

Yeah, nothing like being correct in logic of a trade (buy volatility cuz the markets' finxin' to fall), and nonetheless get asshammered by corrupt people and products.

 

Silver stored in the closet. I see it. I can touch it, and even if it goes down in value...I still OWN it.

Thu, 03/22/2012 - 22:36 | Link to Comment Wixard
Wixard's picture

wow, have they no shame

Thu, 03/22/2012 - 22:36 | Link to Comment max2205
max2205's picture

Proves the bull market is based on fraud protection to the fraudees.

Keep buying the dip till you see these guys in court. That'll be the top.

Thu, 03/22/2012 - 22:37 | Link to Comment lizzy36
lizzy36's picture

These are horrific products.

They are not investments, they are gambling only products.

 

On the front page of the prospectus:

 

 

The ETNs are designed for investors who seek exposure to the applicable underlying Index. The ETNs do not guarantee any return of principal at maturity 

and do not pay any interest during their term. For each ETN, investors will receive a cash payment at maturity, upon early redemption or upon acceleration 


us that will be linked to the performance of the applicable underlying Index, plus a Daily Accrual and less a Daily Investor Fee (each as defined herein).


Investors should be willing to forgo interest payments and, if the applicable underlying Index declines or increases, as applicable, be willing to lose up to


100% of their investment. Any payment on the ETNs is subject to our ability to pay our obligations as they become due.

 


 


Disclaimer

 

 

The long term expected value of your ETNs is zero. If you hold your ETNs as a long term investment, it is likely that you will lose all or a substantial portion of your investment.

That said, today's action was just good old fashion insider trading.

This is an example of why many investors want no part of this cesspool, known as the stockmarket. Confidence what is it good for?

 

Thu, 03/22/2012 - 22:40 | Link to Comment Wixard
Wixard's picture

Yea these are a hot potato but damn they pulled the rug out.

Fri, 03/23/2012 - 06:44 | Link to Comment slaughterer
slaughterer's picture

The ETF/ETN prospectuses are sometimes longer and more confusing to read than the old prospectuses of the MBSs.  I still have a prospectus from Deutsche Bank for a now discontinued oil ETF that is over 600 pages. 

Fri, 03/23/2012 - 06:50 | Link to Comment LeBalance
LeBalance's picture

well then, if they are Defined as Gambling Risk Level Products in the Prospectus, then there is No Issue with them is there?

I am Heroin.

I am the Lottery.

I am a Paper Asset.

I do not hide my nature, read my history and pedigree.

"What?"

You did not read the manual?  It was provided was it not?

lol.

Thu, 03/22/2012 - 22:40 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

rhetorical answer?  pelosi

Thu, 03/22/2012 - 22:43 | Link to Comment Hedgetard55
Hedgetard55's picture

Folks, don't worry, all this shit won't mean a thing within two years, when the whole fucking shithouse comes crashing down on all of us.

Thu, 03/22/2012 - 22:45 | Link to Comment Cursive
Cursive's picture

There may or may not exist a parellel dimension where everyone works hard and is paid an honest wage in money whose value fluctuates very little, if at all.  A penny saved is a penny saved until you spend it (no time limits).  And there is no confiscatory tax code that rewards financial engineering such as offshore accounts.  Forget platitudes about world peace, find this place and we may well find world peace.

Fri, 03/23/2012 - 08:55 | Link to Comment fishertodd
fishertodd's picture

In search of Galt's Gulch...

Thu, 03/22/2012 - 22:50 | Link to Comment YesWeKahn
YesWeKahn's picture

TVIX is designed to be shorted, but it is very hard to find shares to borrow.

Thu, 03/22/2012 - 23:00 | Link to Comment Cdad
Cdad's picture

Umm...borrowing shares is for you, serf.  The big banks can do whatever they want, including selling shares of an equity or ETN, shares that do not exist.  How many millions of dollars were made on shares of Lehman that were shorted, shares that did not exist?  That question is just one of many that was not answered after that takedown and the resulting financial crisis.

This isn't a market anymore.  It hasn't been one for many years now.  And when it falls again, it will be because there is simply no one left that will have anything to do with it.  We are most of the way there, already.

Thu, 03/22/2012 - 23:36 | Link to Comment Hedgetard55
Hedgetard55's picture

Cdad,

 

     Wanted to say I appreciate your posts and the common sense knowledge they contain. Soon we may not be in a position to be able to express these type of thoughts. Thank you!

Thu, 03/22/2012 - 23:45 | Link to Comment Cdad
Cdad's picture

We're all in this together, Hedge.  As for the day they stop letting us speak our minds, it will all be over then, anyway.  We're most of the way to that place, as well.

Thu, 03/22/2012 - 23:55 | Link to Comment Cursive
Cursive's picture

@Cdad

I would rather die on my feet than live on my knees.  I was thinking about that today and wondering if I would be saying it while staring down the barrel of gun.

Fri, 03/23/2012 - 00:24 | Link to Comment Cdad
Cdad's picture

I would rather die on my feet than live on my knees.

 

Agree entirely, Cursive.

Fri, 03/23/2012 - 06:45 | Link to Comment slaughterer
slaughterer's picture

You can find shares of TVIX to short if you are willing to pay the steep commish. 

Thu, 03/22/2012 - 22:52 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

cramer is an informationally symmetric ignoramus

i think this could be the key to his success...

 

Thu, 03/22/2012 - 22:54 | Link to Comment Wixard
Wixard's picture

Booyah! FYI check google, when Cramer tellsyou to GTFO its time to buy.

Thu, 03/22/2012 - 22:56 | Link to Comment CvlDobd
CvlDobd's picture

Tyler, don't make excuses for retail being left holding this bag of shit. You have warned on the dangers of levered ETFs many times here and I applaud you for that. Any ZeroHedge reader or investor in general that got burned on this deserved it.

Now before people go off junking me, think of it this way.

Run of the Mill ZeroHedge poster.

"Fuck Wall Street, bunch of crooks, stupid sheeple of America keep buying MMM stock like it is worth a shit! Dumbasses!"

Wall Street Insider says

"Hey look at those stupid bears (I'm a bear too, just not a suicidal one) lets sell them something we guarantee will go to zero and has no claim on any real asset. Think the bears will buy it from us?"

AND YOU BOUGHT IT! Hook, line, and sinker! At least the sheeple in 3M gets some dividends every now and then, and a sliver of ownership of 3M assets. What do you have Mr. TVIX bag holder? You sir are more greedy than any mom and pop sheeple!

I say this because I am very upset with the path the world is on and the destruction that TPTB are setting up. Most ZHers seem to be prudent and prepared and then they go fuck it all up trying to buy and hold levered volatility ETFs. I just can't get over how stupid that is!

Levered ETF holder fools > Buy and Hope Fools

Thu, 03/22/2012 - 22:59 | Link to Comment Wixard
Wixard's picture

Ive done okay by ETFs, they arent the problem. 

Thu, 03/22/2012 - 23:07 | Link to Comment CvlDobd
CvlDobd's picture

I agree to an extent. They aren't perfect but are useable.

I'm talking about levered ETFs. Especially on an index like the VIX. They are suicide machines for people with suicidal tendencies. PUNK ROCK!!!!!!!!!!!!!!!!!!

Fri, 03/23/2012 - 00:54 | Link to Comment GoinFawr
GoinFawr's picture

ETF's are all Jesse Livermore.

"There is only one side of the market and it is not the bull side or the bear side, but the right side. "

but I prefer  "On a long enough timeline..."

Fri, 03/23/2012 - 02:50 | Link to Comment Tom Servo
Tom Servo's picture

As long as you understand what you're purchasing, I agree.  I got blowtorched (as Robo would say) on FAZ once and that informed me that I cant focus on something that volatile and never touched it again.

 

(edit) - i closed my play trade account after mf global blew up in november.  Best decision I think I've made.  My economic malaise has gone down a lot.  Now, if i could only free up my 401k funds without getting fired or quitting.

Thu, 03/22/2012 - 23:09 | Link to Comment Awakened Sheeple
Awakened Sheeple's picture

They're fine for day trading. A wild ride for sure.. I've had 20% up days and 15% down. I've got my phyzz, and what little debt I have is almost paid off. This is just play money at this point for me as there is no way I'll be able to buy farmland by the time SHTF. To each their own..

Thu, 03/22/2012 - 22:58 | Link to Comment Atomizer
Atomizer's picture

LOL. Street side three card monty [card table] is on the run. FRN notes fallen from the shoebox will leave a trail to the new operation set point. Facefuck account opening will pave the way for peeps to advertise the new business entity. Sheer comedy.

Thu, 03/22/2012 - 22:59 | Link to Comment throwthebumsout
throwthebumsout's picture

The TVIX is dead.  They will not get anyone to trust it.  I lost 50% and when it should have been going up.  These peope are assholes that ruined the business they are in.

Fri, 03/23/2012 - 07:55 | Link to Comment slaughterer
slaughterer's picture

<omitted by author>  I do not want CS to sue me. 

Thu, 03/22/2012 - 23:07 | Link to Comment FinLen
FinLen's picture

Will the VXX blow up on friday becasue of this announcement?

Thaks!

Thu, 03/22/2012 - 23:10 | Link to Comment monopoly
monopoly's picture

Agree, I gave the bastards 30%, which came out to 5% of my total portfolio. As much as I hate these "elites", I still have to take the blame for the trade. I should have checked into this sooner. I did see something last week that they were not issuing shares but it did not click. 

Hey, i have lots of bad trades and about 2 or 3 a year like this. Always learning, even 25 years later. I never bet the farm and never buy on margin. So, I am still in the game, as rigged as it is. 

Tough market, don't care who you are.

Thu, 03/22/2012 - 23:26 | Link to Comment CvlDobd
CvlDobd's picture

How do you differentiate between margin and leveraged ETFs?

Fri, 03/23/2012 - 10:39 | Link to Comment 5880
5880's picture

margin uses the real product to create leverage.

levered etfs uses a future that needs rolling allowing the pit to fuck the roll creating a hole in the product

vxx had the same problem

Thu, 03/22/2012 - 23:22 | Link to Comment carpe_libertas
carpe_libertas's picture

That's the final straw. I'm taking the hit, cashing out my IRA and stacking (more) physical.

Fri, 03/23/2012 - 10:40 | Link to Comment 5880
5880's picture

yes, pay taxes

thank you

Thu, 03/22/2012 - 23:32 | Link to Comment gwar5
gwar5's picture

I'm beginning to think the rampant government sanctioned fraud is telling us they don't want retail money in stock equities.

 

Perhaps the FED is already looking for bond bagholders down the road. Except a worried FED, there appears to be no worries about crumbling faith in market institutions and functions. It's almost as if they have no plans on being around for long in their current form and don't care. 

 

 

Thu, 03/22/2012 - 23:51 | Link to Comment Hallpass2012
Hallpass2012's picture

buy weapons, buy physical gold, silver, copper etc, water source, own a farm, tons of ammo, more weapons & watch the system go down... these clowns think they can run the US based on credit... what if the credit stops? the unsustainable economy built will collapse! but how did this economy come about? easy fucking credit by a loan shark aka the Fed... those people in Washington have no idea what they have got themselves into... my bet is they start the war with Iran as a deflection for the inflation (high oil prices) and the US gov can raise taxes & solve the unemployment problem (aka draft)... of course, this is horrible but most likely - - when the credit flows stop, use your own imagination... continuation of peace? globally? I don't think so, so who fires the first shot? I know every country is trigger happy as of now

Thu, 03/22/2012 - 23:58 | Link to Comment zonkie
zonkie's picture

It is a scam when a product designed to track an index directly or with a derivative strays away. Whatever be the reason for the premium it shouldn't have been there in the first place. These ETNs have no intrinsic value, if they can't track an index then they are not worth a toilet roll.
They should be sued for fraud.

Fri, 03/23/2012 - 00:38 | Link to Comment I am a Man I am...
I am a Man I am Forty's picture

"In this case, and as in everything else related to the market, our advice is stay away from these synthetic contraptions which are merely CDOs (and now CDOs cubed) for public consumption."

And if anyone so stupid to just now figure this out after all the bullshit we've been through, after SDS and UNG, sorry you deserve to lose your money.  I mean TVIX?? Really?  Really??  These are vehicles to screw you.  Keep it vanilla folks.

Fri, 03/23/2012 - 05:56 | Link to Comment Clint Liquor
Clint Liquor's picture

 

Gold, Silver, Platinum and Palladium would be tastier flavors than vanilla.

Fri, 03/23/2012 - 00:44 | Link to Comment RmcAZ
RmcAZ's picture

VVIX? VIX of the VIX? Awesome... Can't wait for TVVIX. And VVVVVVVVVIX.

Fri, 03/23/2012 - 01:17 | Link to Comment carpe_libertas
carpe_libertas's picture

AFAIK TVIX today had nothing to do with the underlying risks involved with ETN's and everything to do with the asymmetrry of information. Insider trading is the new normal.

Fri, 03/23/2012 - 01:30 | Link to Comment q99x2
q99x2's picture

UVXY a bargain at $18.17

Fri, 03/23/2012 - 01:53 | Link to Comment upb
upb's picture

VIX  VXX TVIX, its all moot, only one is in control of it   http://tinyurl.com/7cctuvh

Fri, 03/23/2012 - 02:03 | Link to Comment devo
devo's picture

Tomorrow should be an interesting day...

Fri, 03/23/2012 - 02:30 | Link to Comment JuicedGamma
JuicedGamma's picture

How is it that Barry Minkow went to prison for ZZZZ Best and these perpetrators of fraud (SEC, who cares, backed) are walking around free and collecting year-end bonuses for their "creativity"?

Fri, 03/23/2012 - 02:44 | Link to Comment Slave With Whit...
Slave With White Collar's picture

I am not trying to be facetious as this is a real concern as I plan on using some of these in the future…

All comments are welcome because I fear I am missing something…

·        ETF’s, ETN’s (and I still don’t understand the real world difference) do not have intrinsic value, but neither do regular “vanilla” options that have been used since….

 

·        In understanding what premium means… any other outcome would have been “break of fiduciary responsibility” perhaps the problem is that this was not done sooner, allowing a substantial premium to accrue.

When the buy/sell ration of an ETF/ETN is more one sided then then underline… a premium occurs… then the managers are supposed to issue more shares and use the proceeds to put in the underline… attempting to balance the derivative to the underline. If there is a complaint it is that this issuance did not occur sooner… think of what happened to the Sprott Physical silver fund… the premium got too high and he did an issuance… premium dropped and people were pissed. This is supposed to be the very price discovery mechanism in attempting to balance the product with the underline.  A fair complaint would be that the management protocol was too tardy allowing the spread “premium, discount” to skew too far.

 

·        As far as the “leak” and insider early action. That is as old as the markets itself, does not mean it is right, but it is not unique to ETF’s ETN’s

 

·        Now for the leverage factor… to start off, it is obvious that in the long term any “short” product is doomed to underperform. If the underline and the product are both at 100 for e.g. and the underline goes to 90 (losses 10%) the product goes to 110 (gains 10%). Then if the underline goes back to baseline 100… the product goes to 98.88 and that is only if it is perfect (they never are) and not counting the managements fees. So while the underline is unchanged you have lost. And if the product is “short” times 2 or 3, then it’s worse…

·        But and please correct me if I am wrong (I am sincere) wouldn’t the opposite be true for a “long” product… just do the simple math…

I understand that if this goes on long enough then there is a premium and so the issuance happens and it’s corrected, so there is no real arbitrage opportunity here. But at least it is not negative.

So the problem with using a leveraged long ETF/ETN is no more than the problem with using any leverage (plenty of problems true).

 

My question is… are leveraged long ETF’s/ETN’s anymore uniquely risky/shitty than just using leveraged “vanilla derivatives”

 

Slave with white collar

 

Fri, 03/23/2012 - 02:56 | Link to Comment Mark Wilson
Mark Wilson's picture

An option that is in the money has intrinsic value.

Fri, 03/23/2012 - 02:52 | Link to Comment Mark Wilson
Mark Wilson's picture

If you look at the complete TVIX chart, it does look like one of those penny stock pump/dump scams. "Oh my God, it's the end of the world...oh wait...nope, we're still here!"

 

 

Fri, 03/23/2012 - 03:27 | Link to Comment zebrasquid
zebrasquid's picture

Yeah, yeah, yeah, bad day for this one.

BUT...The fat lady hasn't sung.  Market should drop soon, the rush to the exits could be historical, and, like last year, these shares could go up multiples.

NAV drives the price of this now, the bottom is almost in.  If you believe the market is way overbought, "bag holders" in these shares should not freak out and sell ---

This is still a good vehicle to the ride a big swoon.   What -- you gonna be all "vanilla" and just short something and make, what, a whopping 20% on the correction that you see coming?  

Will that even get bears back to even from the last 6 months?  You need to position aggressively here, or go home.

TVIX at these saner prices(close to NAV) is as good as any aggressive play you can make now.  Puts are good, but don't they essentially trade at a premium to their underlying value, too, AND

go to zero if you get the direction of the underlying wrong?   So, is TVIX all that different?  

 

So, all said and done, what's a better way to play the downside for an outsized pay off?

(I made 10x my money back in '06-'08 betting on the mortgage/banking crisis, but not without lots of pain and patience... you've got to earn big pay days, they don't come for free.

Fri, 03/23/2012 - 04:06 | Link to Comment shuckster
shuckster's picture

My name is Shuckster and I lost $50,000 playing VXX call options... true story

Fri, 03/23/2012 - 04:23 | Link to Comment dvsteenk
dvsteenk's picture

i think it's even worse than one can imagine: the issuers of ETF's and other "creative" leveraged derivative securities (turbos, speeders) know at every moment what positions their clients have taken and can (insider) trade against it. My impression is that most of the "bets" by the clients go bust around expiration days, by unusual moves that go against their speculative position - coincidence?

Both last month and this month, the RBS short turbos on AEX 333 and 336 were stopped out on or the day after Opex by rather small passages over the stop level (333.08 and 337.3), after which the pumping seized and levels dropped again far below those fake tops. Does RBS have a wall between its retail department selling turbos and its trading department pumping or dumping stocks in the AEX? I think not... it seems the roulette wheel is spinning erratically faster or slower at times, depending on what number the house needs to wipe out the most of the unknowing.

I have no doubt this rigged casino game is played in a similar way with other types of derivatives by other insider trading banks. Perhaps some HFT work in a similar manner, by keeping a real-time inventory of all "real" trades, so they know at every instance how much of the free float and at what price has been exchanged into the hands of the unknowing, ready to be squeezed or pumped whenever it is most effective for them.

Fri, 03/23/2012 - 07:24 | Link to Comment tradesavant
tradesavant's picture

This has been coming a long time. On page 11 of the TVIX prospectus it clearly states that it is going to zero and that both long term and short term holdings are not safe from loss due to performance that is not in line with the security objective. Here's one of the nightly Junto sessions that Greg Simmons and I have, just the night before TVIX implodes.

http://youtu.be/PxJyNbfNTvY

 

Fri, 03/23/2012 - 07:41 | Link to Comment Ljoot
Ljoot's picture

"...being handled by the enforcement staff of the Securities and Exchange Commission"

hahahaha

 

Fri, 03/23/2012 - 07:56 | Link to Comment slaughterer
slaughterer's picture

Next victim: AGQ. 

Fri, 03/23/2012 - 10:57 | Link to Comment Chump
Chump's picture

Is she pouring tomato juice on her tits or wtf??

Fri, 03/23/2012 - 09:49 | Link to Comment Zopper
Zopper's picture

yo dawg!  i herd u like VIX , so we put a VIX on your VIX, so youz can VIX while you VIX

Fri, 03/23/2012 - 11:01 | Link to Comment gatorontheloose
gatorontheloose's picture

hahaha ticker : XZBT

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