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October 29, 2010 at 09:42 AM
Barclays Bank is planning a 1-for-4 reverse share split of its iPath S&P 500 VIX Short Term Futures ETN (VXX). The reverse split is scheduled to occur on Nov. 9.
The reverse split means shareholders as of the Nov. 8 record date will receive 1 share of every 4 existing shares.
The VIX is a gauge that aims to reflect market expectations based upon the movement of S&P 500 index options. During severe market declines, investor fear usually lifts options prices along with the VIX. When the market rises, investor fear subsides, which typically causes the VIX to fall.
The VIX currently trades around 21.25, not far from its 52-week low of 12.23.
Falling volatility and contango has put severe downward pressure on VXX’s share price. In this instance, contango happens when future VIX contracts are more expensive than spot prices. As a result, the notes’ performance suffers as it replaces expiring contracts with higher priced contracts.
VXX will retain the same ticker symbol but a new CUSIP number will be assigned.
VXX offers exposure to a daily rolling long position in the first and second month VIX futures contracts and aims to reflect the implied volatility of the S&P 500 Index at various points along the volatility forward curve. The index futures roll continuously throughout each month from the first month VIX futures contract into the second month VIX futures contract.
