In theory yes splits result in the same moves pre and post split but that is not the reality with a stock like this that you know slides lower to a fixed point over time. Actually it is an ETN NOT, NOT an ETF. I am not owning it before and after the split. With small vol spikes always popping in VXX will not reach 3 from 10 anytime soon. But if it pops to 100 in a reverse split, very easily can de This is an ETN...don't be surprised if it reverse splits and another offering occurs to increase the assets under management (this fund has to add money to it or it will literally contango cost decay to $0). Added money means it can have a lot more room to eat the contango roll costs and over a year's time that ETN will go from $100 to $30 no problem. This is not a normal stock just splitting. It is also about the contango cost reducing AUM. Short interest will probably spike if this thing reverse splits...guarantee it. This is a debt instrument.
The ETN price is based on the "exposure to a daily rolling long position in the first and second month VIX futures contracts". If the underlying index falls by 10% the ETN falls 10%. Full stop. Doesn't matter if the ETN is trading at 100 and falls to 90 or trading at 10 and falls to 9. Buyers are taking on the default risk of the ETN issuer, but again this has nothing to do with the price at which the issuer's ETNs are trading. There is a chance the ETN won't trade at the underlying value of the index it tracks, something that is minimized by the ability to create or redeem, but again this has absolutely nothing to do with the price the ETN is trading at. This isn't "in theory" with an ETN, it's purely mechanical, simply read the prospectus - http://www.ipathetn.com/US/16/en/details.app?instrumentId=259118
Just to be clear there is no underlying INDEX. As you said it tries to replicate owning the first two months of the curve based on time to expiration and resets daily moving from front to back month until front month expires and it starts all over again. It does not track any index. If the VX futures in the front month fall 3%, VXX does not fall 3%. It could fall more or less than that depending on the % of the components. If VIX spikes 10%, VXX could move 20% or could move 3%. This is NOT, NOT a tracking ETF. Your ETNs Are Not Linked to the VIX Index: The value of your ETNs will be linked to the value of the underlying index, and your ability to benefit from any rise or fall in the level of the VIX Index is limited. The index underlying your ETNs is based upon holding a rolling long position in futures on the VIX Index. These futures will not necessarily track the performance of the VIX Index. Your ETNs may not benefit from increases in the level of the VIX Index because such increases will not necessarily cause the level of VIX Index futures to rise. Accordingly, a hypothetical investment that was linked directly to the VIX Index could generate a higher return than your investment in the ETNs. One series of ETNs that is linked to the performance of the S&P 500 VIX ShortTerm Futures™ Index TR that is calculated based on the strategy of continuously owning a rolling portfolio of one-month and two-month VIX futures to target a constant weighted average futures maturity of 1 month; (NOT LINKED TO AN INDEX, it is tracking a portfolio) Your ETN Is Not Linked to the VIX Index and the Value of Your ETN May Be Less Than It Would Have Been Had Your ETN Been Linked to the VIX Index Index Components(as of 07/21/2016) Index Components Weightings % CBOE VIX Future AUG 16 88.90% CBOE VIX Future SEP 16 11.10% If we choose not to issue additional ETNs or to cease or suspend sales of the ETNs from inventory, this will impact supply and demand for the ETNs and may impact the liquidity and price of the ETNs in the secondary market. let us not forget this little gem: * 2,500,000 ETNs, principal amount $100 each, were issued on February 3, 2009, an additional 2,500,000 ETNs, principal amount $100 each, were issued on July 2, 2009; an additional 10,000,000 ETNs, principal amount $100 each, were issued on July 24, 2009; an additional 10,000,000 ETNs, principal amount $100 each, were issued on November 5, 2009; an additional 10,000,000 ETNs, principal amount $100 each, were issued on January 7, 2010; an additional 15,000,000 ETNs, principal amount $100 each were issued on January 22, 2010, an additional 25,000,000 ETNs, principal amount $100 each were issued on March 16, 2010; an additional 5,000,000 ETNs, principal amount $100 each were issued on May 3, 2010; an additional 20,000,000 ETNs, principal amount $100 each were issued on August 13, 2010; an additional 20,000,000 ETNs, principal amount $100 each were issued on September 7, 2010; an additional 25,000,000 ETNs, principal amount $100 each were issued on September 21, 2010 an additional 15,000,000 ETNs, principal amount $100 each were issued on October 20, 2010 and an additional 10,000,000 ETNs, principal amount $100 each were issued on October 28, 2010. On October 26, 2010, Barclays Bank PLC announced a 1 for 4 reverse split of the ETNs, effective November 9, 2010. Following the reverse split, 42,500,000 ETNs, principal amount $400 each, were outstanding. An additional 7,500,000 ETNs, principal amount $400 each, were issued on January 11, 2011, an additional 20,000,000 ETNs, principal amount $400 each, were issued on March 14, 2011, an additional 15,000,000 ETNs, principal amount $400 each, were issued on March 5, 2012, an additional 15,000,000 ETNs, principal amount $400 each, were issued on March 16, 2012; an additional 50,000,000 ETNs, principal amount $400 each, were issued on March 19, 2012; an additional 25,000,000 ETNs, principal amount $400 each, were issued on August 17, 2012 and an additional 25,0000,000 ETNs, principal amount $400.00 each, were issued on August 24, 2012. On September 21, 2012, Barclays Bank PLC announced a further 1 for 4 reverse split of the ETNs, effective October 5, 2012. Following the reverse split, 50,000,000 ETNs, principal amount $1,600 each, were outstanding. An additional 10,000,000 ETNs, principal amount $1,600 each, were issued on October 12, 2012, an additional 10,000,000 ETNs, principal amount $1,600 each were issued on February 21, 2013, an additional 20,000,000 ETNs, principal amount $1,600 each were issued on March 25, 2013, an additional 20,000,000 ETNs, principal amount $1,600 each were issued on July 30, 2013, and an additional 40,000,000 ETNs, principal amount $1,600 each were issued on August 8, 2013. On October 25, 2013, Barclays Bank PLC announced a further 1 for 4 reverse split of the ETNs, effective November 8, 2013. Following the reverse split, 37,500,000 ETNs, principal amount $6,400 each were outstanding. An additional 12,500,000 ETNs, principal amount $6,400 each were issued on May 27, 2014, an additional 20,000,000 ETNs, principal amount $6,400 each were issued on March 18, 2015, an additional 20,000,000 ETNs, principal amount $6,400 each were issued on June 8, 2015, an additional 60,000,000 ETNs, principal amount $6,400 each were issued on April 26, 2016 and an additional 50,000,000 ETNs, principal amount $6,400 each were issued on July 22, 2016. After the splits the higher value allows the fund to issue even more ETNs to increase number of "shares" So after reverse split they reflood the market with more ETNs to bring in more capital to the account and the decay is on a much larger pool of money. This is all in the prospectus is you want to read about it.
Also to clarify the VXX is supposed to track S&P SHort term vix futures total return but that is not an actual tradeable index. If VXX reverse splits to $50 it is not about the % moves...they are puffing it up, adding a ton of more assets to it and then providing a lot more room to ride it lower. We know VXX is not going to go below a certain level so it is an imaginary floor due to the way it is managed. $50 can go to $25...but the fund will not let it go from $11 to $6. The only way to get a 50% drop is after it splits due to the fact they will always reverse split when it gets low like it is now. So my whole point was, the reverse split gives you the opportunity to make money shorting or long term puts because at $11.00 they are going to artificially support it. remember that it is not just as reverse split, they then go out and issue millions more ETN shares to pad their fees and bloat the fund again. THis is a fat whale that gets fatter with each split and decays.
Yes, I've read the prospectus in detail, this is an ETN I've invested in for some time. You're missing the fundamental aspect of how the ETN works, it does indeed track a fixed formula "One series of ETNs that is linked to the performance of the S&P 500 VIX ShortTerm Futures™ Index TR that is calculated based on the strategy of continuously owning a rolling portfolio of one-month and two-month VIX futures to target a constant weighted average futures maturity of 1 month" If you want to call it an "index" or not is up to you, they call it "S&P 500 VIX ShortTerm Futures™ Index TR" which does contain the word "index" but at this point it's just semantics. This ETN is going to track the weighted average futures maturity of 1 month, regardless of if the ETN itself is trading at $100 or $10. If that weighted average goes down 1%, VXX goes down 1%, if it goes up 2%, VXX goes up 2%. The issuance of additional ETN's doesn't "flood the market", the ETN trades in a very narrow range around the value of the "S&P 500 VIX ShortTerm Futures™ Index TR", which again is a mechanically determined ratio, with arbitrage facilities in place to ensure it doesn't stray far from NAV. None of this changes based on the price of a VXX share! This is a finance 101 subject, I'm not arguing with you I'm trying help you understand how it works.
You are missing my point...the VXX is not going to give you a 50% return if you short it at $11.00 right now. The floor is artificially supported. Also the fees eat into the value of the VXX as well as the contango loss. All of this erodes the value of the VXX. VXX is not a FIXED index tracking ETN. It decays so no matter what this short term VX futures is doing the ETN is going to lose money on fees and contango roll. So Barclays re-fattens the whale when it reverses and issues millions more ETNs. Look at VX continuous front month values over the past 3 years...Average value is 14-17 or so. VXX has bled down from 70 to 11. All you are arguing is that the VXX will lose 3% if the "index" under it loses 3%. That does not matter. VXX loses money monthly on fees and contango roll costs which are HUGEEEEE. The fund has to keep issuing ETNs to bloat it back up so the VXX will always lose value even if VX is unchanged for months and months. EXPLAIN to me how the VXX loses value when VX 1st and 2d month futures are about the same over time. Because the VXX is a decaying beast unlike the index. If Barclays did nothing the fund would have decayed to $0 assets and delisted. I don't need your finance 101 when you are giving me ivory tower explanations, we are talking about REAL TRADING here.
If basic math is ivory tower... Well I can see you will continue to completely miss the point. Some things in life are a bit complicated and believe it or not being educated in the specific field helps you understand them. I'm an electrical engineering undergrad, would you say I'm resorting to "ivory tower explanations" if I designed an MRI machine you don't understand, or perhaps you'd just say I'm educated in the field in which I'm practicing. Or the mechanical engineer who builds bridges, you know better than all those formula's he came up with in his "ivory tower" right? And doctors, don't get me started on how those neurosurgeons in their "ivory tower" think they know how to do REAL brain surgery! If you think finance is any different than I'd maintain it's probably because you don't have any finance education. It's free to take MOOCs from great professors and great universities, the same basic classes and nearly every finance professional has taken. I highly recommend it. BTW fees are .89% per year, not insignificant but not what I'd call "HUGEEEE" and .89% of ten $10 shares is the same as .89% of one $100 share. This is what I mean about the maths thing. Contango is tracked by the underlying S&P 500 VIX ShortTerm Futures™ Index TR. If the VX 1st and 2nd month futures remained unchanged over a two month period VXX would indeed remain unchanged, i.e. if the 2nd month future didn't decay in value as it became the 1st month future and then eventually became the VIX price on the last day, which would imply that both future months traded at the VIX spot value, which of course they seldom if ever do, certainly not for 2 months straight. However, again both of these factors have nothing to do with the price of the VXX security. Hopefully anyone else stumbling across the thread will be helped by the explanation, good luck to you in your future endeavors.
The reason I care about the reverse split is simply to help facilitate my method of option trading. With these low prices it makes it hard to even go 1 strike away from the current price and receive any premium. A higher price, will give me more strikes (with more than .05 premium) to choose from for my strategy.