An ETN with no underlying asset
To those not familiar, VXX is meant to track the VIX or Volatility Index. This is done by buying futures contracts of CBOE VIX. Normally, when a trader buys VXX, a new share is created and the issuer, Barclays, will buy a futures contract of VIX and a corresponding hedge. However, Barclays announced yesterday that they will no longer issue shares. So what does that mean? VXX now tracks nothing, so everyone that bought and sold VXX as a hedge or as a swing trade on volatility is trading nothing. Literally nothing.
Pure Supply And Demand
Since VXX is no longer moored to VIX, which is market-wide indicator, it can now move freely. You can see this in the charts as VXX is up 10% while VIX is only up 3%. Theoretically, VXX could climb parabolically. A similar example would be TVIX which went 90% over NAV in February, 2012. Of course, in March 2012, it crashed when Credit Suisse restarted issuing. This led to many lawsuits as the timing was suspicious.
Infinite Money Glitch i.e. Gamma Squeeze
It seems once again that Wall Street has come up with some exotic product that is not well understood and sells it for fees, but when times comes for them to pay up, they just turn off the product. They turn off the buy button, they stop issuing shares. Well, here’s the thing. When ETNs no longer issue shares, it’s no longer shortable. Just like TVIX this thing could blow the f*ck up and TVIX didn’t even offer options. Options expiry is this Friday and if you look at the options chain, there’s a clear runway for VXX to hit at least $70 if not much much higher.
FinTwit links VXX/OIL No shorts
TLDR: Unshortable stock can moon because of Wall Street f*ckery $VXX $70C 3/18
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.