TVIX was trading at a 3.2% premium to net asset value on Thursday afternoon. The ETN’s premium surged as high as 90% in March before violently collapsing.
Volatility products are complex vehicles designed to follow VIX futures, not the spot price. [Risks of Volatility ETFs]
“The application of daily leverage on a fund held longer than one day can very quickly erode the holdings returns due to the pernicious effects of compounding arithmetic,” Morningstar says in a review of TVIX. “This fund is an exchange traded note, which is not backed by an actual portfolio of cash and futures. Investors are therefore exposed to the credit risk of the note’s backing bank.”
VelocityShares Daily 2x VIX Short Term ETN
