The VIX ended the day down 4.82 percent to 14.82 as the S&P 500 finished the session up 4.33 points to 1397.11. The two indexes usually move inversely.
The April VIX futures were fell 1.34 percent to 17 even, while the May futures gave up 1.42 percent to close at 20.20. This had the iPath S&P 500 VIX futures ETN (VXX) down 6.89 percent to 17.30 in the regular session and another 1 percent in extended trading. The ProShares Ultra VIX Short-Term Futures ETF (UVXY) fell 13.81 percent to a new low of 15.66 and lost another 1.66 percent after hours.
But it was the VelocityShares 2x VIX Short-Term ETN (TVIX) that remained the volatility story of the day. It fell another 29.8 percent to close at $7.16, adding to its 30 percent loss of the previous session. This came after Credit Suisse, which operates the TVIX, said it would start creating new shares again but only on a "limited basis." And it still trades at a premium to its net asset value (NAV).
A few key points to take away from all this:
- Don't buy what you really don't understand.
- Don't buy anything with a big premium to NAV.
- Don't buy and hold VIX-based products.
On Friday some market observers made comments about these products that were downright laughable. Some were saying they have to be held for the long term. Some commentators on CNBC asked why anyone would buy a product that the creators admit has a likely long-term value of zero, as they state in the prospectus. (Every option you buy is a decaying asset and has a likely long-term value of zero.)
One thing is clear: VIX-based funds and notes can be very useful but are complex, and if you don't understand them you should avoid these products. I have never like the term "ripping your face off," but that is what the pros did to long holders of the TVIX last week.