What Really Happened with TVIX | ETF Trends

VelocityShares Daily 2x VIX Short-Term ETN (NYSEArca: TVIX) is in a two-day meltdown because the premium to net asset value is snapping back sharply after surging as high as 90% earlier in the week.

The nosedive in TVIX has perplexed some because the CBOE Volatility Index, or VIX, actually rose on Thursday, and stocks were flat at Friday’s open.

Known as Wall Street’s fear gauge, the VIX rises when investors are seeking protection in the options markets.

Here’s the deal with TVIX: The exchange traded note is issued by Credit Suisse, which decided to temporarily suspend the creation of new shares in February due to size limits after investors poured money into volatility products. [TVIX Falls More After Credit Suisse Restarts Issuance]

Such a move can lead to premiums or discounts to net asset value. TVIX was trading at a premium based on demand for the ETN. In other words, there was limited supply after share issuance was halted. It’s also more difficult to short TVIX when shares are scarce or unavailable to borrow.

TVIX’s premium to indicative value surged to 90% on Wednesday, an all-time high.