Credit Suisse has announced that the seventh reverse split of TVIX will be December 2nd, 2019 with a 10:1 reverse split.
Reverse splits reduce transaction costs by making the bid /ask spread as a percentage of the price smaller (when TVIX is trading around $5 the one cent minimum spread TVIX’s bid / ask spread is effectively a 0.25% transaction charge). It will also likely make TVIX easier to short—a popular activity with any long volatility fund. For information about shorting long volatility funds see “Is Shorting TVIX the Perfect Trade.”
Lacking major volatility spikes, VelocityShares’ 2X leveraged short term volatility ETP needs to reverse split about every year to keep TVIX in a reasonable trading range. Without market panics, 2X long funds tend to be ravaged by contango at the rate of around 90% per year. In the past Credit Suisse has allowed TVIX to drop below $1 before implementing reverse splits, but recently that threshold has been raised to around $4/share.
After a period of reduced erosion in 2014 and 2015 TVIX’s decay rate has returned to the 90%+ per year range. The post “Monthy & Yearly Decay Rates for Long Volatility Funds” shows how decay rates have shifted over time.
|Event||Dates||Split Ratio||Inception / close price right before reverse split (split adjusted)||Months since inception /last split|
|1st Rev. Split||21-Dec-2012||10:1||0.9||24|
|2nd Rev. Split||30-Aug-2013||10:1||1.68||9|
|3rd Rev. Split||23-June-2015||10:1||0.75||22|
|4th Rev. Split||9-August-2016||25:1||0.92||14|
|5th Rev. Split||16-March-2017||10:1||3.84||8|
|6th Rev. Split||8-June 2018||10:1||4.32||17|
|7th Rev. Split||2-Dec-2019||10:1||~5||17|
If you hold shares of TVIX before a reverse split there isn’t anything to worry about. The value of your investment stays the same through the reverse split process. You just have 10X fewer shares that are worth 10X more each. If your shareholdings are not a multiple of 10, say 43 shares, you will get 4 reverse adjusted shares and a cash payout for the 3 remaining pre-split shares.
If you are short TVIX, same story, no material impact.
Updated Dec 17, 2019
For more on TVIX see: