Most Overlooked Opportunity of 2022 - VXX
Hi Everyone,
Excited to share some good news for our fellow options traders!
-One of the market's most popular instruments, $VXX, recently underwent an anomaly of an event that hasn't occurred in over 10 years in the volatility-trading space. On March 14, 2022, Barclays announced a suspension of share sales and issuances on the iPath® Series B S&P 500® VIX Short-Term FuturesTM ETNs (BATS: $VXX).
-Generally speaking, the $VXX is built to track the first- and second-month VX futures on a rolling basis. Barclays, the issuer of $VXX, doesn't actually hold underlying futures contracts to maintain the ETN, rather, it tracks the performance of the underlying futures contracts on a rolling basis. The product that the ETN tracks is known as the net asset value (NAV) or "indicative value" of the underlying ETN. Issuers use NAVs as a metric to match their ETN prices to their NAV. Essentially, in order for Barclays to maintain the publicly traded product, they match long and short order flow on their ETNs. For example, if a trader wanted to buy 1,000,000 VXX ETNs in one transaction block, Barclays will usually issue 1,000,000 shares of VXX to keep the price of the ETNs the same. On traditional shares of stock, however, 1,000,000 shares of stock in one transaction block could change the stock price due to an increase in demand and a shortage of supply. Equities, unlike ETNs, do not issue shares of stock for order flow to keep the price of the security at its NAV. Whereas, ETNs generally issue notes to keep the ETN price at its NAV.
-Considering that Barclays is no longer issuing shares for their $VXX ETNs, long order flows will not result in the issuance of new shares.
So, what does this mean?
Let's say you purchase 1,000,000 shares of stock, similar to the equity example made in the last paragraph. The purchased shares are no longer issued by Barclays to keep the price of the ETNs at their NAV. Rather, the existing market participants must sell their 1,000,000 shares of stock to you. Due to the increase in demand, the price of the ETNs will increase past their NAV.
Excited to share some good news for our fellow options traders!
-One of the market's most popular instruments, $VXX, recently underwent an anomaly of an event that hasn't occurred in over 10 years in the volatility-trading space. On March 14, 2022, Barclays announced a suspension of share sales and issuances on the iPath® Series B S&P 500® VIX Short-Term FuturesTM ETNs (BATS: $VXX).
-Generally speaking, the $VXX is built to track the first- and second-month VX futures on a rolling basis. Barclays, the issuer of $VXX, doesn't actually hold underlying futures contracts to maintain the ETN, rather, it tracks the performance of the underlying futures contracts on a rolling basis. The product that the ETN tracks is known as the net asset value (NAV) or "indicative value" of the underlying ETN. Issuers use NAVs as a metric to match their ETN prices to their NAV. Essentially, in order for Barclays to maintain the publicly traded product, they match long and short order flow on their ETNs. For example, if a trader wanted to buy 1,000,000 VXX ETNs in one transaction block, Barclays will usually issue 1,000,000 shares of VXX to keep the price of the ETNs the same. On traditional shares of stock, however, 1,000,000 shares of stock in one transaction block could change the stock price due to an increase in demand and a shortage of supply. Equities, unlike ETNs, do not issue shares of stock for order flow to keep the price of the security at its NAV. Whereas, ETNs generally issue notes to keep the ETN price at its NAV.
-Considering that Barclays is no longer issuing shares for their $VXX ETNs, long order flows will not result in the issuance of new shares.
So, what does this mean?
Let's say you purchase 1,000,000 shares of stock, similar to the equity example made in the last paragraph. The purchased shares are no longer issued by Barclays to keep the price of the ETNs at their NAV. Rather, the existing market participants must sell their 1,000,000 shares of stock to you. Due to the increase in demand, the price of the ETNs will increase past their NAV.