Funds News

Volatility tracking note VXX at risk of short squeeze -S3 Partners

NEW YORK, March 17 (Reuters) - The iPath Series B S&P 500 VIX Short-Term Futures ETN may be ripe for a short squeeze, potentially dealing more losses to investors already battered by recent gyrations in the popular volatility-tracking ETN, analytics firm S3 Partners warned.

Shares of the exchange traded note have swung widely this week and were up as much as 58% at one point, after British bank Barclays said on Monday it had temporarily suspended the sales and issuance of VXX shares due to capacity constraints.

The ETN’s price has given back all of those gains. But its high short interest, which stands at 90% of the float, makes it a top candidate for a short squeeze – which typically occurs when an asset’s rising price forces bearish investors to buy back borrowed shares, accelerating upside momentum – S3 analysts, Ihor Dusaniwsky and Matthew Unterman said in a late Wednesday note.

“The VXX ETF is the most squeezable ETF in the U.S. market,” they wrote, noting that recent losses for bearish investors may put pressure on short sellers to unwind bets.

Short sellers sell borrowed shares, looking to make a profit by buying back the shares at a later date at a lower price.

Investors had a front row seat to how a short squeeze can send the price of a security soaring after some so-called “meme stocks,” including GameStop, logged massive price jumps.

On paper, short sellers in VXX were recently down $301.7 million, or 48%, for 2022, according to the S3 Partners report.

Reporting by Saqib Iqbal Ahmed Editing by Nick Zieminski