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.
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The XIV blowup was self-reinforcing. Vol had been compressed by huge interest in vol selling (high AUM in inverse VIX ETNs) so a small absolute increase in VIX represented a large % in crease, which meant a large loss for XIV. It was then compounded because XIV was looking at
So it’s a combination of massive AUM and a leverage factor that means for every 1% increase in VIX futs they had to buy back 2% of their position. With UVXY the AUM is smaller plus the 1.5 leverage factor means they only buy 0.75% of their position for a 1% increase in VIX futs
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On top of that as
@ksidiii explained, the vol drag acted to compound the AUM in short VIX products like XIV until things got to the pint they could snap, whereas it actually reduces the AUM of UVXY on average, so harder for UVXY to get to AUM levels where it makes a difference. -
thank you
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