How much would volatility have to rise for UVXY to get back to its inception price?

Given the popularity of volatility ETFs, we thought it would be an interesting thought experiment to calculate how much VIX futures would have to rise to put UVXY back to its price at inception. We assumed this would be a cut and dry process, but we found an initial complication in determining what that inception price was. According to ProShare’s website, as of 1/31/2015, UVXY has lost 91% of its value since its inception date of 10/3/2011. That implies an inception price of around $359.55 (we took [1.0 / (1.0 – 0.91)] * 32.36 which was UVXY’s closing price as of 1/31/2015). That price doesn’t jive which prices from Yahoo, Google, or Stockcharts which range from a low of $1000 all the way up to almost $100,000, which is curious to say the least. Presumably this is an error in applying the proper adjustments for the ETF’s reverse share split history.

Data quality aside, lets assume that ProShare’s is correct, what would it take for UVXY to get back to $359.55 from its Friday closing price of 22.57?

To answer this question we have to look at the holdings for UVXY as of 2/13/2015:

uvxyThe VIX futures which UVXY is long are worth $1000 per point and there are a little over 21.4 million shares outstanding. To be worth $359.55, the market value of the fund would have to be around $7.71 billion. In order for that to occur, the 53,628 contracts the fund owns would have to rise by around 134 points, placing the price of the VIX implied by the futures around 150. Since 1991 the highest value for the VIX has been a shade under 90. Make sure you understand the risks inherent in these products before buying in. If you think volatility is going to rise it is much more efficient to go to the VIX futures market directly, or use options to express your opinion.

Categories: Volatility

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