macrocephalopod

sell for a profit (at the higher-than-NAV price). The AP activity (buying VIX futs, selling UVXY) pushes up the prices of VIX futures and pushes down the price of UVXY but because UVXY started off at a premium, the net effect is that the prices of both VIX futures and

UVXY are higher than they were before the process started. Demand for ETN shares pushes up the price of the constituents in exactly the same way that demand for ETF shares pushes up the price of the constituents (or demand for stocks increases stock prices etc)

Few things, the share creation process doesn’t make this as reflexive, the APs soaking to move it to the value kinda stops that dynamic + APs aren’t forced to keep that matched book the same way MMs are. It’s a completely different dynamic.

Just think about what happens when 1 unit of UVXY is bought and you go through an AP share creation cycle. The original purchase of UVXY nets out because the AP sells a share, so no impact there. You are left with a purchase of 1.5x VIX futures, that is what causes px to go up.

The APs don’t have to necessarily keep a matched book so that VX future being bought isn’t a guarantee... ya know. On top of that the APs are going against the prevailing price (if demand is high they are coming to force this down).... + share creation dilutes the reflexivity

This process isn’t really a cascading gamma effect the way how a supply & demand driven asset that needs to be hedged by MMs generally operate, ya know. That IV price is really the goal of the AP, which isn’t bound to the strongholds or keeping a pure “matched book”

learning a lot here, anything you suggest reading to learn more about authorized participants for these types of products?

Uhhhh i don’t know anything off the top of my head besides Vance’s work...(which I’m a fan of) He talks about this process a bit here https://www.google.com/amp/s/seekingalpha.com/amp/article/3012686-how-does-uvxy-work …