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Thinking about a nightmare scenario associated with $VXX's resumption of share creations in Sept/Oct. VXX been available to short since start of this fiasco in March. This is surprising since parties loaning out shares are sitting on a 30% premium that will go away #VXX #$VXX
I suspect most of these lenders are Create-To-Lend (CTL) operations. They bought VXX shares, near-perfectly hedge them with VIX futures or short $VIXY and lend out the shares to shorts for a sweet borrow fee (last I hear at the rate of 30% per year).
When VXX's premium appeared in late march the CTLs would have seen a massive paper profit materialize, VXX +30% and their short VIX futures positions unchanged. Some may have cashed out at that point, but why not collect huge borrow fees now and then sell at the last minute?
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