VelocityShares Daily 2X Vix ST ETN(股票代號: TVIX) is a double leveraged exchange traded note issued by Credit Suisse. It is designed to track the popular vix index, but TVIX’s performance reflects twice the daily movement of the vix. Last week, the ETN did not function properly, on a day when the vix increased, the ETN actually dropped precipitously.
Not all exchanged traded products are created equal. Just because the product is exchange traded with seemingly good volume and liquidity, does not guarantee the validity of the product’s functionality. With financial products becoming more and more complex, there are some bound to be malfunctioning because of technical difficulty. Case and point, TVIX was trading at a premium to its fair value because Credit Suisse decided to stop issuing new notes due to some abitrary rule set forth in its prospectus, with supply and demand imbalanced, TVIX failed miserably at tracking its underlying index nor provided hedgers the protections they intended on that particular day. Word of advice, most leveraged ETFs and ETNs are meant to be for short term hedge and speculation, and not suitable for long term hold.
Education: ETNs are notes issued by Big Banks and are only backed by the banks full faith, ability and willingness to pay up. They are traded on the exchanges like ETFs, and ETNs tracked a certain index return like ETFs. ETNs are debt instruments, and thus they do not own any underlying asset. They do mature, and the issuing bank then pay a return that is linked to the index the ETN tracks. Beware of exotic products, be supicious, and know your risk.
Buen camino on your financial education journey towards financial freedom.