Hi - anyone have experience trading the VIX and corresponding ETFs / ETNs? In particular I am wondering about the TVIX etn vs. the standard vix performance. For those who don't know the TVIX is a 2X ETN that attempts to double the returns on the short term vix futures contract.
My question is why the TVIX posted a loss of 4.59% today ( 4/25) while the vix went up 7.35% in normal trading? I've searched around a bit and didn't find anything in particular on this. Any information would be appreciated as I'm trying to learn more about this subject and how the related securities trade.
Thanks!
I thought I understood this reasonably well, but got burned yesterday. It is a really bad feeling when you were actually right about the where the VIX was heading, but end up losing nearly 5% instead of the gain of nearly 15% that you were expecting the ETN to track.
I am chalking it up to my learning and risks of a leveraged ETN, but I would love for someone to explain what really happened.
^^^^Exactly the same for me. Anyone else have any thoughts or knowledge of how other leveraged ETFs / ETNs track the underlying instrument?
bump. would love to hear why TVIX goes up when VIX goes down and vice versa? Is it not linked to VIX? Pretty confused...
Well it is pretty simple.. TVIX is an inverse EFT! Meaning it will go up when the VIX goes down and down when the VIX goes down.
Studiofan - congrats on being a focking idiot. TVIX is not an inverse ETF. Is a quick google or yahoo finance search too much trouble for you? It's people like you that make WSO suck so much.
And it's not even an ETF, it's an ETN. Can't imagine you'll google that difference either.
OP, if you want the full answer, the TVIX prospectus pretty much will lay it out for you. In summary, TVIX is a different instrument than simply tracking the VIX itself. Because it is leveraged short-term volatility and is traded independently, it doesn't have to trade in line with the VIX. The risks and pricing calculations are different, as are the influences of supply / demand on the pricing. The ETN attempts to do 2x short-term volatility returns, but can make wacky moves that don't always have obvious explanations (like most other leveraged ETF/ETNs).
There seems to be some small misunderstanding the TVIX which I hear of for the 1st time (thanks for this good question by the way) is double the VXX and not the VIX, the VIX is the most known volatility index of the CBOE. Logon on the bloomberg page and put TVIX you will get 4.92% for the day and VXX will be 2.54%, hopefuly the math works except for the tracking error. One word about leveraged ETFs, they track their underlying index on a daily basis not on yearly basis. ETNs they are ETFs not securitized by a basket of securities of the underlying they are aimed to track but by the creditworthiness of their issuer the Barclays Capitals.
Remember these vix ETF/ETNs replicate indexes based on VIX futures. VIX futures =/= VIX. Look at the last 2 days performance between the front month vix future and the VIX index itself. In addition, these ETF/ETNs also are affected by the front month curve shape which has been collapsing since the expiry of the Dec contract.
Awesome product which you can make a ton of uncorrelated money in but they are much more complicated than a general bet on VIX.
got it. but when the vix goes from 20 to 40, TVIX generally should go up, correct?
and what do you guys think of this product? especially since its trading around 30 and it has been around 110 - you think this is a good entry point? or just too risky? reason i wanted to do this trade is because current volatility seems low to what i think it would be in 2012 - what are some of the alternatives to VXX and TVIX?
Really appreciate the responses!
so right now the VIX is up by 6.51% and TVIX is down by 2.20%...that seems pretty damn uncorrelated. guessing this is a pretty bad product to invest in?
though the 86% gains in august seems pretty enticing: http://seekingalpha.com/article/315818-vix-etps-2011-year-in-review
I hopped back into TVIX on Wednesday at $15.75. I had been trading this religiously from July-October but then I took a bit of a hit on a bad October 3rd trade and have been waiting for it to bottom (since I don't have a margin account and can't short-sell) before trading again. It's at $19 now and I expect it to reach low-to-mid 20's by end of next week which would be roughly 40-50% profit on 100% of my portfolio.
TVIX isn't necessarily correlated to 2x the price moves of the ^VIX. It's based off the 1 and 2-month forward contracts pricing and also has to either work against Contango (which causes horrible decay), or in an environment where future contracts are selling for less, Backwardation (which adds to ridiculous gains). Right now we are still in contango but I could see that switching to backwardation soon.
This thing has the potential to rise 20-40% on any given day depending on market environment. I was fully invested in August when it went up 45% in one day.
By the way, TVIX set record trading volume on Friday at just under 30 million shares. TVIX has the potential to occasionally trade on price/volume and market supply/demand and move completely uncorrelated with what it is supposed to track.
TVIX is also an ETN meaning you could be SOL if catastrophe happens. The ETF equivalent is UVXY but it is much more illiquid. Only 1.6 million shares were traded Friday but this is much less of an issue unless you are trying to buy blocks in the hundreds of thousands or millions like happens frequently in TVIX.
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