Showing posts with label VIIX. Show all posts
Showing posts with label VIIX. Show all posts

Friday, November 30, 2012

XIV and ZIV Are Huge Success Stories Two Years After Launching

It was two years ago today that VelocityShares launched their six VIX-based exchange-traded products and I’m fairly certain I was the only one who was covering that event on the day of the launch: Impressive Launch for Sextet of New Volatility ETNs from VelocityShares.

Two years later, one of these products, the VelocityShares Daily Inverse VIX Short-Term ETN, (XIV), is an unqualified success in terms of assets and performance. Over the last three months, XIV has traded an average of more than 12 million shares per day, making it the second most popular VIX-based ETP, after VXX. Part of the reason for XIV’s popularity is no doubt due to performance. As the chart below shows, XIV is up more than 200% for 2012 and has been the top performer across all ETPs for the year.

The amazing thing about the performance of XIV is that it was not very difficult to predict. In fact, less than one week after XIV was launched, I unveiled my bullish forecast for XIV in the Bespoke Investment Group’s second annual roundtable. When asked about some of my favorite picks for 2011 and beyond, I predicted:

“2011 will mark the rise of volatility as an asset class.  Part of the reason for this rise will be the runaway success of VIX-based ETNs and ETFs, notably the recently launched XIV, which will prove that volatility vehicles can be good buy-and-hold investments.”

As meteoric as the rise of XIV has been, what surprises me is how little attention XIV’s sibling, ZIV, (VelocityShares Daily Inverse VIX Medium-Term ETN) has received. ZIV typically trades about 10,000 shares per day and yet this ETP has outperformed XIV by a substantial margin since the two were launched. Not only has ZIV been a better performer, but it has done so with considerably less risk. In 2011, for instance, XIV was down 45.54% for the year, while ZIV incurred a loss of only 9.20%. I thought perhaps that my ZIV Undeservedly Neglected post from January of this year might jump-start some interest in ZIV, but for some reason, investors continue to shy away from this impressive performer.

The other four products that VelocityShares launched with XIV and ZIV have had mixed results. The most famous of these is TVIX, which was briefly the top VIX-based ETP in terms of volume in February, before Credit Suisse (CS) suspended creation units in the product, which opened the door to the ProShares Ultra VIX Short-Term Futures ETF (UVXY) displacing TVIX as the top +2x VIX-based ETP. For the most part, VIIX, VIIZ and TVIZ have operated as niche products since their launch.

Going forward, don’t be too surprised if XIV and ZIV continue to post impressive numbers and if you haven’t yet looked at ZIV, it is never too late to do so.

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Disclosure(s): long XIV, long ZIV, short VXX and short UVXY at time of writing

Friday, February 24, 2012

The Story of VIX ETPs Relative to their Intraday Indicative Values

This week has seen an explosion of interest in the VIX exchange-traded product (ETP) space, most of which has been due to the suspension by Credit Suisse (CS) of creation units (think ‘new shares’) in the VelocityShares Daily 2x VIX Short-Term ETNs (TVIX).

For those who are late to the story and/or would like some background, the links below should suffice, but for today I am interested in some data that might indicate how much stress there is in the market for TVIX shares, for VelocityShares products other than TVIX and for a ProShares product that is similar to TVIX, but is an ETF rather than an ETN: the ProShares Ultra VIX Short-Term Futures ETF, UVXY.

For this analysis, I have evaluated the prices of a handful of VIX ETPs relative to their Intraday Indicative Value (a real-time estimate of an ETP’s fair value, based on the most recent prices of its underlying securities) for the last week. The graphic below shows the premium for five VIX ETPs as a percentage of their indicative values, normalized to a 100 point scale.

The chart shows that prior to the suspension of new creation units in TVIX after the close of regular trading on Tuesday, February 21st, these VIX ETPs generally traded very close to their indicative values. In fact, the norm for the long ETPs (TVIX, UVXY, VXX and VIIX) was to trade at a slight premium to the indicative value, generally less than 1% higher. By contrast, the one inverse ETP on the list, XIV, tended to trade at a slight discount to indicative value, again, generally less than 1%.

Once Credit Suisse closed the door for new creation units, the price of TVIX has drifted steadily higher relative to its indicative value, even trading at a 20% premium just a few minutes ago.

In terms of other market dislocations, however, the evidence is not compelling. UVXY, which is an excellent substitute for TVIX, doubled its prior record volume yesterday and is on schedule to top that today, but after seeing a slight lift in the premium relative to indicative value, UVXY’s premium is now back to historical norms.

Looking at some of the other VelocityShares products, the two next most popular after TVIX are XIV and VIIX. Here again, there have been some minor fluctuations since the Credit Suisse announcement, but nothing that has pushed these products more than 1% away from their indicative value.

Based on the indicative value data, then, so far the only market dislocation has been in the TVIX product, with no evidence of a spread to competing products (UVXY) or other products in the VelocityShares stable, such as XIV or VIIX.

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[source(s): Yahoo, VIX and More]

Disclosure(s): long XIV; short TVIX, UVXY and VXX at time of writing

Friday, January 28, 2011

TVIX Finally Getting Its Due as Day Trading Rocket Fuel

Launched at the end of November 2010, I am surprised it has taken so long for TVIX to become a popular short-term trading vehicle. I predicted in the middle of December that TVIX “will hit a tipping point and become the darling of day traders,” but in the absence of meaningful volatility during the last few months, it has sometimes been difficult to see the potential of TVIX.

With today’s sell off in stocks, however, TVIX was up as much as 18.5% at one point and traded a record 120,000 shares in the first half of today’s session, easily eclipsing its prior volume mark.

Shortly after Direxion launched the first triple ETFs in November 2008, I came out with what sounded like an outrageous claim at the time: Prediction: Direxion Triple ETFs Will Revolutionize Day Trading. It took awhile, but eventually these products became the preferred vehicles for many short-term traders. Their popularity was undercut somewhat when margin requirements were raised to match the leverage built into these trades. With TVIX, which is essentially a +2x version of VXX, VIXY and VIIX, I expect that the tipping point has arrived today. With new liquidity, short-term traders now have a product where 10% daily moves will be relatively common and margin issues should be minimal.

Of course, as a buy and hold vehicle, TVIX will present several significant obstacles, including negative roll yield due to VIX futures term structure/contango issues, as well as the loss in value associated with volatility + compounding that plague leveraged ETFs.

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Disclosure(s): short VXX at time of writing

Tuesday, November 30, 2010

Impressive Launch for Sextet of New Volatility ETNs from VelocityShares

The list of tradable VIX ETNs more than doubled today, following the successful launch of six new ETNs by VelocityShares.

Last week in VelocityShares Jumping in to the VIX ETP Space with Leveraged and Inverse Products, I mapped out the new VelocityShares ETNs against existing and announced competitive offerings in the VIX-based ETP space.

Several things struck me about today’s trading in these new issues. First, the six ETNs traded an aggregate of approximately 160,000 shares today, which is an excellent showing and indicates strong demand for volatility products, particularly when there is so much uncertainty swirling around the European sovereign debt crisis. Second, I was interested to see that the most actively traded products were the two leveraged ETNs. To my surprise TVIZ, which uses +2x leverage applied to a five month target maturity, was the volume leader (57,273 shares), edging out TVIX, which applies +2x leverage to a one month target maturity. In terms of opening day volume, the next level of interest was in the +1x (VIIX) and -1x (XIV) one month ETN, which overlap with existing Barclays products. Finally, only 100 shares were traded in the +1x (VIIZ) and -1x (ZIV) products that target a five month maturity. So, taking the liberty of jumping to conclusions based on only one day of data, investor interest in new VIX-based ETNs seems to be greatest in terms of leveraged products, then the one month maturities, with the five month maturities bringing up the rear.

Of course I expect that sophisticated investors will adjust their strategies based on the shape of the VIX futures term structure. Today the front month VIX futures closed at 2.60 points below the second month VIX futures. On the other hand, the fifth month VIX futures closed only 0.15 points below the sixth month VIX futures. To complete the daily volatility picture, today the front month and second month VIX futures rose at about twice the rate of the fifth month and six month VIX futures.

I see many opportunities here and am even toying with the idea of trading only VIX-based ETPs for the foreseeable future.

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Disclosure(s): none

Monday, November 22, 2010

VelocityShares Jumping in to VIX ETP Space with Leveraged and Inverse Products

Less than two weeks after I mapped out the various VIX exchange-traded products (ETNs + ETFs) in The Evolving VIX ETN Landscape, that landscape has has already changed dramatically. The first surprise was the launch of the C-Tracks ETN on CVOL (CVOL), a direct competitor to VXX, one week ago today.

The bigger change, however, is a suite of six new VIX-based ETNs on the way from VelocityShares (see filing) to be issued by Credit Suisse (hat tip to Adam Warner, who may be de-blogging for awhile, but is still tweeting his thoughts.) In the updated VIX ETP graphic below, I have coded the new VelocityShares products with a (V) suffix. In terms of covering the existing waterfront, the new VelocityShares products include VIIX and VIIZ to compete directly with VXX and VXZ, with the inverse XIV to compete against XXV.

The innovations come in the form of new leveraged ETNs as well as a new inverse ETN which targets VIX futures with a five month maturity. In the +2x space, these are TVIX (one month target maturity) and TVIZ (five month target maturity). In the inverse space, the new entry is ZIV, which has a five month target maturity.

For volatility traders, these are exciting developments. While I have no idea what the timeframe is for the launch of the new VelocityShares products, I can already envision dozens of exciting trades...which has me wondering why I am blogging about this instead of opening up a hedge fund...

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Disclosure(s): short VXX at time of writing

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