It has been two weeks since Barclays surprised volatility investors by announcing the suspension of new creation units in the popular iPath Series B S&P 500® VIX Short-Term Futures ETN (VXX). Yesterday, a Barclays press release clarified some of what happened, noting that the firm had issued $15.2 billion more in VXX than had been authorized in an August 2019 $20.2 billion shelf registration. Barclays has elected to conduct a rescission offer to eligible purchasers and is also dealing with regulatory authorities on this matter.
As for the future of VXX, Barclays was vague, but ended their press release
with the following statement:
“Barclays intends to file a new automatic shelf registration statement with the SEC as soon as practicable. Barclays remains committed to its structured products business in the United States.”
It is worth noting that VXX is a small part of the $12.7 billion structured products business in the United States that Barclays has pledged to continue with. In that respect, the future of VXX is uncertain, but the intent to file a new automatic shelf registration “as soon as practicable” is certainly a favorable development.
VXX is down today with positive developments in the talks between Russia and Ukraine, but for the first time since March 16th, the VXX premium relative to its intraday indicative value (IV) is down from the previous day, currently at 26.3%, down from yesterday’s 28.5% at the close.
The chart below captures the journey in VXX relative to indicative value (VXX.IV) going back to the Russian invasion of Ukraine.
As noted previously, the risk for shorts is that the short squeeze will continue and maybe even accelerate, perhaps in dramatic fashion, with the VXX premium to VXX.IV rising sharply. On the other hand, the risk for longs is that Barclays will suddenly announce a new automatic shelf registration and the premium to IV will suddenly collapse to zero, as was the case with TVIX and Credit Suisse back in 2012.
While options in VXX are expensive (implied volatility is at 120), defined risk options trades are typically the best way to proceed when there is substantial “jump risk” (or overnight gap up or gap down risk) in both directions.
Finally – and for
completeness sake – I should note that the OIL ETN that also had
its creation units suspended in conjunction with VXX continues to behave relative
to its indicative value, currently showing a premium of just 0.05 over
indicative value.
[source(s): TD Ameritrade]
Further
Reading:
VXX
Upside vs. Downside Risk with No New Creation Units
Barclays
Suspends Creation Units for VXX
Attempt
at TVIX Short Squeeze Fizzling Out
The
Resurrection of TVIX
TVIX
Premium to Indicative Value Creeping Back Up
TVIX
Creation Units Return; What It Means for Investors
Is
TVIX Now Just a More Docile UVXY?
Recent
TVIX Volume and VIX Futures Volume
The
Story of VIX ETPs Relative to their Intraday Indicative Values
The
Ups and Downs of the New Premium in TVIX
Credit
Suisse Suspends Creation Units in TVIX: What it Means
Four
Key Drivers of the Price of TVIX
Will
TVIX Go to Zero?
Who Is
Trading TVIX?
Volatility
Becomes Unhinged on Friday
TVIX
Finally Getting Its Due As Day Trading Rocket Fuel
All About
UVXY
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Disclosure(s): net short VXX at time of writing