Credit Suisse adds to Daily Inverse VIX Short Term ETNs after JPMorgan announces VIX deal

By Sheri Kasprzak

New York, Oct. 6 – On the heels of JPMorgan Chase & Co.’s announcement that it will offer 0% return notes linked to its J.P. Morgan Strategic Volatility index, Credit Suisse AG, Nassau Branch priced an add-on to its 0% VelocityShares Daily Inverse VIX Short Term exchange-traded notes. The notes are linked to the S&P 500 VIX Short-Term Futures index.

Credit Suisse added another $8.5 million to the notes for proceeds of $34,247,265. The add-on priced at 402.909.

The original $5 million of notes priced on Nov. 29, 2010.

The payout at maturity will equal the closing indicative value of the notes on Nov. 29, 2030.

On June 27, 2011, the issuer effected a 10-for-1 split of the notes, which now have a stated principal amount of $10.

The adjusted closing indicative value of the notes on the inception date was $10. On subsequent days, it equals (a) (i) the closing indicative value on the preceding day times (ii) the daily ETN performance of the notes on that day minus (b) the daily investor fee.

The closing indicative value will never be less than zero. If the intraday indicative value of the notes is zero or less at any time or the closing indicative value is equal to zero, the closing indicative value of the notes on that day and on all following days will be zero.

The daily ETN performance equals (a) one plus (b) the daily accrual plus (c) the index return over the previous day’s closing index level times negative one. The daily accrual is the rate of interest that could be earned on a notional capital reinvestment at 91-day Treasury rate.

The daily investor fee is an annualized amount equal to 1.35% of the closing indicative value on the preceding day.

The notes are putable at a minimum of 25,000 notes. Holders will receive the closing indicative value minus an early redemption charge of 0.05%.

The company can accelerate the notes if their intraday indicative value is ever 20% or less of the prior day’s closing indicative value.

The ETNs, according to the investment bank’s description, offer traders an exchange-traded instrument to help them efficiently express their market views on the short-term futures contracts of the CBOE SPX Volatility index.

“The index was designed to provide investors with exposure to one or more maturities of futures contracts on the VIX, which reflects implied volatility of the S&P 500 index,” said Credit Suisse’s website.

“The calculation of the VIX is based on prices of put and call options on the S&P 500 index. The S&P 500 VIX Short-Term Futures Index ER targets a constant weighted average maturity of one month. The ETNs are linked to the daily inverse return of the index and do not represent an investment in the inverse of the VIX.”

JPMorgan’s VIX notes

Last week, JPMorgan said it would be pricing later this month return notes linked to its proprietary J.P. Morgan Strategic Volatility index.

The index provides long exposure to volatility index futures at the two-month point and provides investors with the potential to profit from the “negative roll yield” associated with long VIX futures positions by activating a short position in VIX futures at the one-month point in certain market conditions, according to the investment bank’s description of the index.

The notes, which are due Jan. 26, 2016, pay at maturity par plus the index return, which could be positive or negative.

The final index level will be the average of the closing index levels on the five trading days ending Jan. 26, 2016.

Holders can request that the company repurchase their notes early. The payout will be par plus the index return minus a 0.5% repurchase fee. The issuer said it intends to accept all requests for repurchase but is not obligated to do so.

Pricing is expected on Oct. 28 and settlement on Oct. 31.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.