Out-of-whack Credit Suisse security puzzles volatility traders

NEW YORK - A small, unexplained aberration in a highly specialized corner of the vast U.S. equity and derivatives market is causing a buzz among traders already on edge about a potential market pullback.

While TVIX is not considered a bellwether for the stock market, at a time when investors are jittery about the health of the equities market any unexplained price moves serves to unnerve investors. To many traders it is only a matter of time before markets fall, and they want to see it coming before others do.

Although XIV and TVIX have differences, Pinkleton added, “You never want to be in that situation as a trader. So when questions are raised about TVIX you’re going to be a little restless.”Formally known as VelocityShares Daily 2x VIX Short-Term ETN, TVIX tracks twice the returns of the S&P 500 VIX Short-Term Futures Index, a measure of market volatility.

When the TVIX trades at a premium to its theoretical value, large financial institutions short it. When the issuer releases new shares at the theoretical value, the financial institutions settle the short position and pocket the profit. Analysts and traders said that while Credit Suisse may not be issuing new shares, they did not know for sure and that has put already nervous traders more on edge.

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