Thu, Aug 9, 2012 | Jared Woodard
You might remember that episode in February and March of this year, when the volume in volatility ETPs spiked to new highs. The order flow caused all sorts of chatter about whether TVIX was going to obviate the usefulness of VIX futures, or even cause problems in the broader market. Never mind that, at its peak, total VIX ETN vega outstanding was never more than $300M or so.
As a public service, some of us approached the issue in a less excitable fashion, pointing out all the reasons why investors taking long volatility positions posed no threat to the market. But I caught the following footnote in an otherwise excellent recent BofA/ML note:
For example, in 2012, inflows into levered volatility ETNs such as TVIX have caused well-documented distortions in the VIX futures curve and realized volatility of shorter-dated VIX futures.
So this is the conventional wisdom now?
Is TVIX Distorting the VIX Futures Market?, February 29, 2012
This Week in VIX Scaremongering, March 8, 2012
Are Volatility ETPs like VXX and TVIX Going to Kill the Market?, March 20, 2012