Replies to post #5706 on VelocityShares Daily 2x VIX ST ETN (TVIX)

[DrContango]

Is there any place on the web that directly discusses the TVIX?..A daily blog....? somewhere besides here? Just curious...Thanks

Good morning, August:

I have braved the insanity by posting as bustin_ur_chops and cynical_guyy over in Yahoo land. Check out my posts on the TVIX board.

Be warned: my mission there is to warn and educate lottery ticket holders like yourself of the dangers of holding onto this radioactive product even overnight. You will also see that, when in a bad mood, I can viciously mock the trolls and self-righteous lunatics that hold court in Yahoo country.

I'm reposting an essay from April 2:


bustin_ur_chops • Apr 2, 2013 9:09 AM

HOW TVIX WORKS

Various comments from yesterday display a continuing misundertanding of this instrument:

Where is the SEC?

The VIX is up 81 cents and this is a 2X fund. It should be way up??? This is insane.

I thought this reverse follows S&P 500, I read that in prospectus.

Just curious if anyone knows why TVIX is not keeping up with TZA as the market drops today?

With S&P down 9.5 TVIX should be up .18

This is not trading per its formula ???

If this is the case the fund manager should be terminated for rolling over to a contact that is almost impossible to catch up without a counter leverage.

Where are these prices coming from 12.70 to 14.19??? Is it like a Car's retail sticker price. Who would buy that fantasy number. No one pays that price, so bet against it and the fund manager takes all his customers to zero...right?

``````

TVIX does NOT follow the VIX nor the SPY nor the Treasuries. It is a note whose value is based upon a complex mathematical algorithm that simulates a basket of front two months VIX futures that roll on a daily basis during each futures cycles.

The next futures expiry is in 2 weeks, Tuesday Apr 16 after the market closes. The morning after Mar VIX futures expiry two weeks ago, TVIX was comprised 100% of April futures. There are 4 weeks to this cycle with mkt closed Good Friday. Therefore, 19 mkt days this month.

Each and every day until Apr 16, the fund "sells" 1/19 of its original April contracts and purchases an equal number of May contracts.

After this afternoon's roll, TVIX will be ~50/50 April/May. After the roll of Apr 16, it will be comprised of 100% May futures.

Most of the year the VIX futures have an upsloping curve and the spot VIX is less than the futures price. This market condition is called CONTANGO. Every day the fund "sells" the cheaper April contract and purchases the more expensive May contract. This is called NEGATIVE ROLL YIELD. This is where most of the DECAY of this fund occurs. TVIX sells low, buys high almost every day.

As you can see, TVIX noes not need a rising mkt and falling VIX to wither and DECAY! When contango hits 10%, with a flat VIX, TVIX can drop 20% (remember double leverage) in amonth.

Futhermore, TVIX enjoys the mathematical magic of leverage ETP decay, but that's another dissertation for another day.

TVIX is also leveraged by using SWAP notes; too complicated to explain.

google "TVIX prospectus" and read it!


````
addendum Sat a.m.

get delayed futures at

VIX futures

VIX/K3 (May futures) will drive TVIX until Tues futures expiry


watch futures curve and see contango at

VixCentral

TVIX website with weighting; download and READ prospectus

[url]www.velocityshares.com/tvix
[/url][tag]TVIX[/tag]

remember, contango rules


Doc