Thursday, March 29, 2012

TVIX Down 75%, Investigations and arbitrations to follow

Last week, the VelocityShares Daily 2x VIX Short-Term exchange-traded note, which trades under the symbol TVIX, shed half its market value between Thursday and Friday, a decline which created significant losses for investors, and undererscored the complexities of easy-to-trade yet complex securities.
TVIX is an exchanged traded note, not an exchange traded fund, which is one issue. It is tied to volatility of the underlying index, which may or may not be an issue, and it moves twice as fast as the volitality of that index. It is purportedly designed to hedge against stock portfolio declines, and is designed to double the daily returns on the Chicago Board Options Exchange Volatility Index, or VIX, and to rise when stocks fall.
However, the TVIX is down 75% this year, significantly more than one would expect from the product as structured and presented to investors.
A securities that doubles the potential profit or loss based on the volality of a commodity, backed only by the creditworthiness of a brokerage firm. And you thought Lehman Principal Protection Notes were complex?
Obviously there is nothing wrong with these securities in the abstract. But complex products need to be carefully examined and measures taken to insure that investors understand what they are buying, and something went seriously wrong here. For more information regarding TVIX, call Beam & Astarita at 212-509-6544.