Courtesy of IndexUniverse, reporting from Oliver Ludwig:

ProShares, the fund company known for its large family of inverse and leveraged ETFs, set a 1-for-6 reverse split on its now-super-popular VIX-related ETF “UVXY” to ensure that bid/ask spreads on the security don’t grow too large as a percentage of its declining share price.

The fund, the double-long ProShares Ultra VIX Short-Term Futures ETF (NYSEArca: UVXY), has been in the news since last week, when its popularity began soaring in the wake of Credit Suisse’s decision to halt creations of the VelocityShares Daily 2X VIX Short-Term ETN (NYSEArca: TVIX)—an exchange-traded note that delivers similar exposure to the VIX volatility curve as UVXY.

The decision to do a reverse split on UVXY isn’t related to the explosion of interest in the ETF, but is a function of the downward pressure on VIX futures over the past several months. UVXY was worth more than $34 a share when it came to market in October of last year, and it’s now trading at $5.60, according to Google Finance. It has lost more than half its value since the beginning of the year.

Even though UVXY often trades with a bid/ask spread of just 1 cent, that penny becomes a more conspicuous trading cost the cheaper the ETF becomes. The 1-for-6 reverse split, effective March 8 for shareholders of record as of the close on March 7, will pump up the share price about six times and cut the number of outstanding shares by about the same amount.

At today’s price, UVXY, now the only double-long exchange-traded product that’s taking in new money, would be worth more than $33 a share on a post-split basis. Continue reading →