“High margin requirements could prevent a fund from obtaining sufficient exposure to VIX futures contracts and may adversely affect its ability to achieve its investment objective,” it said.
“Buyers of either calls or puts have paid premia that were based on much higher implied volatility values than will be prevailing post the proposed changes,” said Athanassios Diplas, principal at Diplas Advisors LLC. “Similarly, anyone directly trading these two ETPs, either long or short, whether for hedging or direct investment, will have to adjust their exposures, and incur the associated costs of rebalancing.”
ProShares’ changes should also reduce the chance of an “acceleration event” that could facilitate the closure of either product, if regulatory blessing is received.
“The reduction in leverage reduces the amount these products need to trade daily, and makes SVXY less likely to blow up again,” said Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors. “It’s harder for VIX futures to go up 200 percent in a single day compared to going up 100 percent in a single day.”
The press release from ProShares noted that the products do not directly track the VIX Index, and are intended for use as trading vehicles rather than long-term holdings.
This article was provided by Bloomberg News.