VelocityShares Daily 2x VIX ST ETN (TVIX)

[eric4x]

UVXY reverse split is explained by Olivier Ludwig.*

http://www.indexuniverse.com/hot-topics/11125-proshares-to-reverse-split-vix-etf-uvxy.html?fullart=1&start=2

Quoting from the article:

"By the looks of it, UVXY continues to be the beneficiary of halted TVIX creations last Wednesday, and in a big way."*

"UVXY’s assets under management have exploded upward since Credit Suisse’s decision. The Swiss bank said it made the move because TVIX had exceeded its “internal limits”—what appears to be a fancy way of saying that the ETN’s assets were growing so rapidly that the bank’s risk-control desk might be having difficulty ramping up complex hedges just as quickly."*

"The basic point is that plenty of investors and traders reckon the VIX might shoot higher before long, which explains why people are piling into UVXY, particularly since TVIX is not taking in any new money."*

The result is the opposite of what I would have guessed.*

I would have thought that more people would want to buy TVIX, since the price will be going up faster. The impression I get is that people are buying UVXY because it seems to be a better bargain, and because TVIX might drop once Credit Suisse resumes creating new shares.*

I also would have thought that UVXY would be rising because more people are buying it, and this would make a reverse split unnecessary. Of course, the share price might rise only for intraday trading, or until some adjustment is made to keep it in line with the futures contracts.*

The explanation given is that the spread between bid and ask is too wide, relative to the share price. A difference of one penny would mean a lot less if the share price were a lot higher. Some funds have a rule that they can't trade shares under a certain price, so I would think this is more the reason for the reverse split.*

I assume that, when TVIX begins adding new shares again, the adjustment will reset the value AT THAT POINT, - - wherever it finds itself. Others might assume that the new shares will drop it suddenly, like a stone, back to where it would have been if new shares were being created all along.*

The "fund" is investing directly in futures contracts, but the "note" is a simulated investment. I assume that the bank believes it can invest the same money more profitably in other ways.*

Many of my assumptions have turned out to be wrong. I will use the best logic I can, but as they say, "No battle plan survives contact with the enemy." Even though it might SEEM logical, there are always hidden variables.*