Retail holders of the TVIX exchange-traded product were getting ripped off by institutional investors for years. Sadly this product, which has a market capitalization of $1.2 billion dollars (and a management expense ratio of 1.65%, so not a trivial money-maker for the issuer) will cease trading on a public exchange on July 10. The notes themselves will still exist, but operate in a “wind-down” state which means that there is going to be quite a bit of havoc in terms of its market value vs. the underlying index it is supposed to track.
TVIX leveraged its asset value into futures contracts of the two front-end months of VIX. As of June 23, 2020, 79% of its notional value was in July VIX futures and 21% in the August month. This gyration of selling the short-month and longing the second month was an excuse for institutional shareholders to siphon money from ETF holders that were silly enough to hold onto it for more than a one day period. Incidentally, other futures-linked ETFs (e.g. commodity ETFs such as USO) exhibit the same characteristics.
To put an amount on this, at a VIX value of 34, to maintain a double exposure to $1.2 billion notional value of volatility, the TVIX fund would have had to hold about 55,700 contracts of July VIX futures, and 14,800 contracts of August VIX futures. 111,000 futures contracts in July traded today.
The effective closure of the TVIX ETF, which was the largest volatility ETF, might work for the benefit of other volatility ETFs. It might also increase the volatility of volatility futures (wrap your head around that one).
My guess is that Credit Suisse is getting skittish on this product blowing up on them in a catastrophic manner.
