The TVIX Debacle

Tyler Durden's picture

With the double-levered long Vol ETF TVIX down 30% in the face of a falling equity market and rising VIX, reality appears to have been suspended. The crushing divide seems driven by the fact that Credit Suisse halted share creation forcing the ETF to behave more like a closed-end fund and with its massive premium to NAV (thanks to extreme hard-to-borrow-ness), this compression makes some 'technical' sense. While the Vol ETFs are designed to track VIX futures not spot, we remain skeptical of these instruments (or the options on them in their wonderfully compound manner) and although CS has said this cessation of share creation is temporary, it definitely brings up significant operational risks for anyone considering trading these vol plays.

The TVIX premium to NAV was huge at over 80% as it became hard-to-borrow and with today's action that premium is cut in half (and we assume NAV will rise given the pop in risk).

UPDATE: What is probably most likely the driver of the collapse, however, is the reversion to reality (akin to the NAV premium) as pointed out by Nic Colas (h/t) of TVIX (the actual equity position) to TVIXIV (the underlyting vol index itself)...


Charts: Bloomberg

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Clueless Economist's picture

MUST hold 13,000...dear GOD PLEASE

LongSoupLine's picture

"We're well off the lows!" - Maria "nails on a chalkboard" Bartormo

idea_hamster's picture

If you're wondering whether TVIX will go to zero, consider this:

[B]ecause of the way in which the underlying Indices are calculated, the amount payable at maturity or upon redemption or acceleration is likely to be less than the initial principal amount of the ETNs, and you are likely to lose part or all of your initial investment.  In almost any potential scenario the Closing Indicative Value (as defined below) of your ETNs is likely to be close to zero after 20 years and we do not intend or expect any investor to hold the ETNs from inception to maturity.

 That's from page 1 of the TVIX prospectus.

Comay Mierda's picture

not only that but contango is killing the vix etfs.  personally i see vxx hitting $15-$16 range before any possibility of a turnaround.  it is stuck in a steep downward channel over the last week or so that broke out of a downard triangle starting back on the 1/13  the market will prob go haywire starting mid april, but there is still some serious hopium in the system

sablya's picture

The same holds for any leveraged ETF.  All else being equal, a 3x will go to zero faster than a 2x.  Decay, reverse split.  If you didn't have to pay to borrow shares, you could just sell short TNA and TZA and ride the decay forever without any risk.

Panafrican Funktron Robot's picture

What's particularly asinine is that most retail can buy VIX options directly through their regular trading accounts.  There is the obvious weirdness/manipulation of the VRO at expiry (and I wouldn't suggest holding until expiration), but even there, the VWA/VWB opening indicators on expiration day provide a pretty reliable range of where the VRO will fall.  

Main point:  If you want a VIX play, just trade the VIX options instead of getting caught up in this crap.

Cadavre's picture

If you're wondering whether TVIX will go to zero

 - the art of finessing reverse splits to zero ...

From article, "Vol ETFs are designed to track VIX futures".

The difference between designed and delivered is the fund managers taste.


tradesavant's picture

If you read page 28 of the prospectus it clearly states that TVIX will go to zero and you will lose substantial portions of your investment. I quote directly from the prospectus:


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. 


Here's one of our daily Junto sessions, on Wednesday evening, where Greg Simmons and I lament overthe fraud that these ETF/ETNs are.

max2205's picture

fyi, from congressdouche


Samllcap investors should beware the just-passed JOBS Act, whose new rules on crowdfunding may make ripoffs easier. The legislation would let firms generating less than $1B in revenue raise more money from multiple investors without SEC registration, exempt accountants from attesting to internal controls of the firm it audits, or disclosing conflicts of interest with brokers who provide research.

Cadavre's picture

Sign me up and bail me out, Scotty - shopping that next great CDS play.

Coinciding with a call from Dallas FED chairman for the immediate breakup of the break up of large banks ... learned this somewhere: Ten 10 Megaton bombs have a lot more kill radius than One 100 Megaton bomb. Great, so now there will be the parking at a GS branch next to the Baskin Robins tp contend with .. great ... go forth and rehypothocate said LLoyd to Izzy Pop!

JPM Hater001's picture

I hope we dont start crossing back and forth over again but I called this three weeks ago.  Fed can buy is into a new mile high hole but there is a real mental barrier for everyone but the Algos.

Mile high hole... I miss you Julie...climbing the


HedgeAccordingly's picture

makes perfect sense.. fleece the average investor. wallstreet wins -

speconomist's picture

Another link on the topic if you want to understand it better:

Four Key Drivers of the Price of Tvix:

HelluvaEngineer's picture

FWIW, this apparently somehow just whacked the VXX as well

No Bid's picture

it's entirely possible that it collapses all the way to NAV if they start to issue new shares.  hard to borrow means you can't short it to the NAV and make the spread.  this price action looks like someone knows about upcoming shares.  or initial speculation leads to a run.  


either way, should never be hard to borrow, create the shares or lock up new share issuance and take a page from the fed's playbook... "we will not issue shares until late 2012." 

Marge N. Callz's picture

That is why ETF's are a bigger ponzie than the stock market.

Sam Clemons's picture

Amazingly, inverse ETFs are even bigger junk than regular ETFs.  As if that would be possible.

Apocalicious's picture

All inverse ETFs will go to zero eventually. All of them. It's a when not if proposition.

Sam Clemons's picture

Not when they can reverse split ad infinitum a la Citi and AIG

The Axe's picture

super ponzie....ponzie cubed....

BackOffice Slut's picture

Hard to borrow? More like NOT BORROWABLE AT ALL!  Either that or i got fleeced again  :-(

Wixard's picture

Tvix was up the other day even though the vix was down. Huge red flag right there.

resurger's picture

VXX was down and the S&P was down, nothing wrong there ...

i took the losses, and i knew that it was bullshit!

those instruments must have been way way higher if those markets are heading higher, as more people want to hedge against the downturn


MarcusLCrassus's picture

With this kind of volatility, TVIX might be a good candidate for a straddle. 

TradingJoe's picture

its already underway, hedgies are shorting TVIX and buying VIX futures!!! Thing is, one little "news" and the door won't be wide enough for all to squeeze through it! :))

fonzannoon's picture

spoken like a true crackhead...when will people wake up? You should read the long walk by Stephen King. It's the same premise. You think you will make a fortune and end up with a shotgun pointed at your head.

fonzannoon's picture

I closed my account today due to this. Enough is enough.

HarryM's picture

Went to lunch , came back and was down $9000+

Real estate can't be much worse than this

This is fucking criminal

slewie the pi-rat's picture

good for you guys!

i hope you get your funds without suing in a routine manner;  bleed the damned beastie, boyz!

and thxz to tyler and nic for getting this up and nailing it!

JPM Hater001's picture

"Closed my account today due to this"

You're just playing the wrong side.  This is not a normal market.  Ladder out (Buy expiration in each month over 12 months and as one goes out put in the next.

This is not going to be a normal 1000 point drop.  You only have to be right may also be the last time...

fonzannoon's picture

I think someone made the point that if you happen to be holding this or anything similar and nail the timing perfectly and have a 2 million dollar gain when you sell your screen will flash "haha just kidding go fk yourself!!"

They won't let you win. Especially if it is the big one. I am in Sheep dog's camp from here on out. Poof...and it's gone.

J 457's picture

I've tried that since Nov and continue to lose every month since.  Maybe eventually I'm right, but at this rate will go broke before getting even.

CalibratedConfidence's picture

the casino continues its record fleecing rate

junkyardjack's picture

Heads the casino wins, tails you lose

JustObserving's picture

TVIX premium to NAV was 80% and it's not even the new iPad?  Does it deserve a 40% premium now?  Markets are disconnected from reality and rationality.

lizzy36's picture

Well when NO new shares are being printed, who the hell knows what premium it deserves.

It should be halted, and delisted.

TradingJoe's picture

Hedgies had a field day today! 

CvlDobd's picture

Anyone with half a brain should have seen this coming over the past few weeks. Tyler keeps showing examples of the levered ETFs being a mostly unwinnable game and yet many here keep going back to the fire. Was the premium and suspension of creation units not a sign that something was up?

Idiots who dick around with these deserve to give all their money to the crime syndicate.

amadeusb4's picture

Right, because buy and hold stocks has been such a wonderful investment strategy since 2000. So if your front motorcycle tire blows due to a manufacturing defect, then you're an idiot for dicking around with motorcycles? Liability declaration in a prospectus does not obsolve the institution from everything.

tmosley's picture

Hmmm, so you think your only two choices are levered ETFs and stocks?

It's more like you buy a tire from a bankrupt, zombie company that is well known for having 100% of its tires fail catastrophically.  Sure, the company may be at fault, but you are the one that didn't protect your interests, even though you KNEW that this was and remains a corrupt game.

I left the paper game after QE1 started.  I can't fathom the thought process of anyone who decided to stay after QE2 was announced.

NotApplicable's picture

Well... they gotta put that money... wait for it...


CvlDobd's picture

@ amad your logic is flawed as pointed out in tmosley's post.

Your motorcycle tire argument would be valid, if I cut the cords from the inside of the tire with a dremel tool prior to mounting then got pissed off when the tire blows out in the middle of a fast sweeper and sends me into the guardrail.

As it stands, I check my pressure before every ride and visually inspect the carcass (prospectus) before every ride for nails. When I do buy tires I only use Michelin Pilot Power 2CTs and Power Pures on the R1 because they are a reputable company that makes a solid tire. I am also very comfortable and familiar with the handling characteristics of their tire. So try again.

@ NA, if they have to put it somewhere they could also give it to a bum, shred in their garbage disposal, or my choice, give it to a local stripper after a lapdance. Equally as useful.

This market is clearly designed by TPTB to wipe out all bears so that when the collapse comes they wont havee any money left to profit on it. Levered volatility ETFs just hasten the process for them so why do so many zero hedgers continue to gladly give them their money?



Panafrican Funktron Robot's picture

"why do so many zero hedgers continue to gladly give them their money?"  

Pretty fucking excellent question imo.

CvlDobd's picture

Your downvote came from one of today's bagholders... uh I mean sophiticated investor!

lizzy36's picture

This is another "awesome for confidence" product. Who the fuck creates these monsters?

Moreover, these 2x/3x inverse products are an absolute horror for anything but an intraday punt. The should be banned as a retail product.

Want to create a cheap hedge against mrkt volitality why not buy a SPX or SPY put (especially with implied vol so low).

TVIX doesn't even track the VIX it tracks the VXX.

devo's picture

I believe the prospectus for this instruments says your investment will go to zero if held long enough. There isn't a good Vix tracker, unfortunately. Selling Vix options is probably the best strategy, since in purchasing them you're buying implied volatility on volatility, and who can accurately guage that?

Panafrican Funktron Robot's picture

"Selling Vix options"

Agreed, particularly because it's Euro style and the can't flash crash/smash you out of the position.