I just came across an excellent paper titled TVIX Explosion Drives Vol-of-Vol Higher [link removed, use google] from DB about TVIX. There are significant structural changes in the market with increasing TVIX AUM, and its impact on all other volatility instruments.
The main takeaway from the article is that leveraged products are short-gamma - requiring ETN provider to buy after positive move in the underlying, and sell after negative move - whether it is bull or bear. Natural hedge for such product, a long gamma ETN, would require leverage between 0 and 1, and does not exist, or likely to ever appear in the market.
The main takeaway from the article is that leveraged products are short-gamma - requiring ETN provider to buy after positive move in the underlying, and sell after negative move - whether it is bull or bear. Natural hedge for such product, a long gamma ETN, would require leverage between 0 and 1, and does not exist, or likely to ever appear in the market.
This is a fantastic document; thanks for posting.
ReplyDeleteDoes this give us any idea as to what it was that caused Credit Suisse to halt new TVIX issuances? Does it suggest that they don't just take an exactly offsetting position in VIX futures?
Does anyone still have this document as I'd really like to read it?
ReplyDeleteThanks