The recent falloff in the CBOE Volatility Index following a spike earlier this month has prompted the automatic redemption of a Barclays exchange traded note designed to track VIX futures.
The iPath Long Enhanced S&P 500 VIX Mid-Term Futures ETN (NYSEArca: VZZ) on Friday traded below $10 a share, which triggered the redemption. The ETN’s “automatic termination date” becomes July 1, according to a press release from Barclays, which issues the note.
Holders of the note on the termination date will receive a cash payment of $10 a share on July 11, according to information posted on the ETN’s website. The note traded as low as $9.68 on Friday.
The iPath Long Enhanced S&P 500 VIX Mid-Term Futures ETN is a relatively small product in terms of assets with $14 million at the end of May, according to data from the National Stock Exchange. Trading volume in the ETN spiked on Friday as the redemption was activated.
The ETN is geared to provide the performance of VIX mid-term futures contracts. The VIX, Wall Street’s “fear index,” rises when markets plunge in periods of uncertainty. [Are VIX ETFs Understating Market Risks?]
The VIX closed below 16 on Friday as U.S. stocks rose every day last week on hopes the Greek austerity vote will moderate European debt fears. Its 52-week low of 14.27 was set in April.
“Poor performance may cause the fund provider to automatically redeem shareholder positions,” investment researcher Morningstar said in a profile of the ETN. “While shareholders will have their funds returned, they will lose the position.”
iPath Long Enhanced S&P 500 VIX Mid-Term Futures ETN
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