The meltdown in a leveraged VIX-futures exchange traded note has raised serious questions over volatility-linked products and ETNs in general.
VelocityShares Daily 2x VIX Short-Term ETN (NYSEArca: TVIX) lost more than half its value late last week after the premium that had built up in the ETN collapsed. It was down an additional 12% on Monday.
“This is a wake-up call,” Morningstar analyst Samuel Lee told Bloomberg News.
Credit Suisse, the issuer for TVIX, temporarily halted new share creation of the ETN in February. This resulted in the fund trading at a premium to indicative value. The premium surged to 90% last week before snapping back violently, causing TVIX to fall sharply on Thursday and Friday in heavy trading. [What Happened with TVIX]
“People don’t take seriously the options that issuers have” that can cause ETNs to be influenced by factors other than the asset class they are tracking, Lee said in the Bloomberg story. [TVIX Falls More After Issuance Restarted]