Do not bet too much on TVIX. As you know TVIX designed mostly for fast trading due to downside nature of TVIX.
Four key drivers of the price of TVIX that every investor should understand:
Volatility – this seems obvious, but in the short-term, the movements of the front month and second month VIX futures explain almost all of the change in the price of TVIX. For day traders, TVIX becomes essentially a substitute for trading the VIX futures and with the exception of leverage, the other factors below are inconsequential.
Leverage – another obvious factor, the 2x leverage in TVIX means that on average it moves about as quickly up and down in percentage terms as the VIX does and twice as quickly as a basket of front month and second month VIX futures. In the short-term, leverage means mostly that the moves in the underlying are exaggerated; in the long-term, leverage enhances volatility compounding and has a negative impact on price.
Contango – thanks to the emergence of VIX ETPs as the cornerstone of volatility as an asset class, issues related to the VIX futures term structure in general and contango and negative roll yield in particular have become among the most frequently discussed issues in this space. Simply stated, the front month and second months of VIX futures are in contango more than 75% of the time, with the result being a monthly drag on TVIX’s price that exceeds the current annual yield on the 30-Year U.S. Treasury bond.
Volatility compounding – the more volatility a leveraged security exhibits, the more that volatility will have a negative impact on performance over an extended period. The issue is the same as someone who owns a dress shop and marks the dress down 50% and then up 50% or reverses the chronology and marks the dress up 50% and then down 50%. Either way, the value of that dress declines by 25%. The same is true for leveraged ETPs and the degree of the price decay is a direct function of volatility.
If you combine all four factors you have a product that is ideal for day trading, as it can skirt the contango and volatility compounding issues in a compressed time frame. For buy and hold investors, however, contango plus volatility compounding is a recipe for big losses.
Why educate him? Let him drown in his own ignorance.
It sounds almost ludicrously humorous, while touting his own almighty prowess daily, that he's actually parading his ignorance in front of millions of audience.
Great to hear from you. Hope all is well. What are you doing these days?
In terms of TVIX, I appreciate your analysis of what factors into the price but as a price action trader I tend to keep it simple. The price action smacks of accumulation (smart money quiet buying with plenty of volume). I think this means that they expect a very strong sudden surge in volatility. When exactly, apart from my "kill the time" predictions among these slobs, I have no clue when but it will happen so I am just keeping my position LONG. Can the market blow off to 1400 quickly? Yes. Will this change my stance on TVIX? No. Look at today the market is higher and so is the TVIX. That is wrong. IF the move is sustainable, TVIX should be crushed with even the smallest move in the S&P. I am playing for a major cup and handle breakout on the S&P that can take it way beyond 1500 and perhaps even 1600, BUT for that pattern to play out we need a "handle" for the "cup" that gets formed around 1220-1277 range. I am playing for such a move.
That move takes TVIX very high in a very short time. $50 easily. Which is also a 50% fibonacci level from its $108 high give or take. Talk soon.
50?? that would be great. I have cost avg 15.80. sold half in 20's a little bit ago just holding 1,000 shares now but considering more.
my question is on recent news of suspension in TVIX- how will this suspension effect price when market flips? Does that have anything to do with your $50 target? Way I see it, is less supply and more demand as market pulls back a bit means ka-boom. Thank you.