VelocityShares Daily 2x VIX ST ETN (TVIX)

[eric4x]

Not tracking VIX, but tracking VIX FUTURES.*

I followed this link given by Vance3h:

http://caps.fool.com/Blogs/understanding-etfetn-decay/597736

It would be nice if checklist34 could use a spell-checker before publishing. There must have been at least 34 spelling errors, that a spell check program would have easily corrected.*

I will offer a few quotations from the article, after correcting the spelling problems.*

"These things do not track the underlying, they track the FUTURES of the underlying."*

"VXX does not track the VIX. It tracks the price of 30 day duration VIX futures."*

"This is why the VXX doesn't go up 5% on a day that the VIX goes up 5%. Heck, it may one day go DOWN on a day when the VIX is up 5%. It may well go UP on a day when the VIX is down. It's NOT TRACKING THE VIX, IT'S TRACKING VIX FUTURES."*


Compared to the decay of contango, he says:

"Backwardation has the opposite effect, it would INCREASE the amount of contracts that our little ETF had, causing anti-decay."*

"A real example:"*

"After Lehman, volatility sky-rocketed, and VIX futures sky-rocketed with it. But the market didn't anticipate that the VIX would stay at insane levels like 80 for 2 months. So in, say, October 08 the November 08 futures didn't rise nearly as much as the October futures rose. VIX futures went into backwardation. VXX, had it existed, would have anti-decayed at an amazing rate. At one point the amount of backwardation was close to 50%/month, meaning on that day you would have bought 1.5 times as many new contracts as you sold, causing extreme anti-decay. This extreme backwardation contributed to the meteoric rise that VXX and TVIX would have seen, had they existed in that time."*

This article is from May 2011, so the numbers will be a little outdated. But anything that happened before that time gives us a good history lesson.*

Many of our exchange-traded products did not exist during the crash of 2008. But he makes the point that the effect of anti-decay would have caused an unbelievable jump in "bear share" prices. According to this way of thinking, we don't have to worry about decay as much as we might have thought. If it's time for the "bear share" prices to go up, the decay effect can't hold them down.*

The TVIX ETN or NOTE from Credit Suisse, as I understand it, is not actually buying and selling the futures contracts, but making other types of investments with the money they have, and then adjusting the share price to match what it should have been. It would be like keeping somebody's cash instead of placing the bet they wanted. If the bet comes through, you have to cover it, but if the bet loses, you get to keep the money. Is that about right?*

I originally found this investorshub forum while looking for contango.*

I found TVIX while looking for volatile stocks. I found a list of stocks, and TVIX was on the list. Then after I bought some, I started looking for information about it, which led me to articles about "contango." When I searched Google for the words - - TVIX contango - - this investorshub forum popped up as one of the search results.*

One thing I like about TVIX is that it has such an interesting forum, with so many knowledgeable and successful traders commenting on it. The share price is affected by market conditions generally, so the discussion is not limited to a particular company or industry. All things related to the economy or the markets generally have an influence on TVIX, and similar products. So I figure that this is the best way to learn about the stock market. And the only way I could stay interested is to actually own the shares, so I will plan on holding or trading TVIX for a while.*

I previously bought a stock, which went down after I bought it. I waited for what seemed like a long time, until it went back up again. I sold with a limit order, at a small profit. Then after I sold, it just kept going up and up. That is why I want to divide my shares into different "blocks," so I can "keep my stock, and sell it too."*

I don't know about a new car, but I could use a new driveway. The problem is that when I see a yellow light, I don't know whether to stop there, or just keep on going.*