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Investments | 6 Months Ended
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Jun. 30, 2023
Investments [Abstract] |
INVESTMENTS | NOTE 3 – INVESTMENTS Short-Term Investments The Funds may purchase U.S. Treasury Bills, agency securities, and other high-credit quality short-term fixed income or similar securities with original maturities of one year or less. A portion of these investments may be posted as collateral in connection with swap agreements, futures, and/or forward contracts. Accounting for Derivative Instruments In seeking to achieve each Fund’s investment objective, the Sponsor uses a mathematical approach to investing. Using this approach, the Sponsor determines the type, quantity and mix of investment positions, including derivative positions, which the Sponsor believes in combination, should produce returns consistent with a Fund’s objective. All open derivative positions at period end are reflected on each respective Fund’s Schedule of Investments. Certain Funds utilized a varying level of derivative instruments in conjunction with investment securities in seeking to meet their investment objectives during the period. While the volume of open positions may vary on a daily basis as each Fund transacts derivatives contracts in order to achieve the appropriate exposure to meet its investment objective, the volume of these open positions relative to the net assets of each respective Fund at the date of this report is generally representative of open positions throughout the reporting period. Following is a description of the derivative instruments used by the Funds during the reporting period, including the primary underlying risk exposures related to each instrument type. Futures Contracts The Funds may enter into futures contracts to gain exposure to changes in the value of, or as a substitute for investing directly in (or shorting), an underlying benchmark. A futures contract obligates the seller to deliver (and the purchaser to accept) the future delivery of a specified quantity and type of asset at a specified time and place. The contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying commodity, if applicable, or by making an offsetting sale or purchase of an identical futures contract on the same or linked exchange before the designated date of delivery, or by cash settlement at expiration of contract. Upon entering into a futures contract, each Fund is required to deposit and maintain as collateral at least such initial margin as required by the exchange on which the transaction is affected. The initial margin is segregated as cash and/or securities balances with brokers for futures contracts, as disclosed in the Statements of Financial Condition, and is restricted as to its use. The Funds that enter into futures contracts maintain collateral at the broker in the form of cash and/or securities. Pursuant to the futures contract, each Fund generally agrees to receive from or pay to the broker(s) an amount of cash equal to the daily fluctuation in value of the futures contract. Such receipts or payments are known as variation margin and are recorded by each Fund as unrealized gains or losses. Each Fund will realize a gain or loss upon closing of a futures transaction. Futures contracts involve, to varying degrees, elements of market risk (specifically exchange rate sensitivity, commodity price risk or equity market volatility risk) and exposure to loss in excess of the amount of variation margin. The face or contract amounts reflect the extent of the total exposure each Fund has in the particular classes of instruments. Additional risks associated with the use of futures contracts are imperfect correlation between movements in the price of the futures contracts and the market value of the underlying Index or commodity and the possibility of an illiquid market for a futures contract. With futures contracts, there is minimal but some counterparty risk to the Funds since futures contracts are exchange-traded and the credit risk resides with the Funds’ clearing broker or clearinghouse itself. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified times during the trading day. Futures contracts prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting a Fund to substantial losses. If trading is not possible, or if a Fund determines not to close a futures position in anticipation of adverse price movements, the Fund will be required to make daily cash payments of variation margin. The risk the Fund will be unable to close out a futures position will be minimized by entering into such transactions on a national exchange with an active and liquid secondary market. Option Contracts An option is a contract that gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or other instrument at a specific (or strike) price within a specified period of time, regardless of the market price of that instrument. There are two types of options: calls and puts. A call option conveys to the option buyer the right to purchase a particular futures contract at a stated price at any time during the life of the option. A put option conveys to the option buyer the right to sell a particular futures contract at a stated price at any time during the life of the option. Options written by a Fund may be wholly or partially covered (meaning that the Fund holds an offsetting position) or uncovered. In the case of the purchase of an option, the risk of loss of an investor’s entire investment (i.e., the premium paid plus transaction charges) reflects the nature of an option as a wasting asset that may become worthless when the option expires. Where an option is written or granted (i.e., sold) uncovered, the seller may be liable to pay substantial additional margin, and the risk of loss is unlimited, as the seller will be obligated to deliver, or take delivery of, an asset at a predetermined price which may, upon exercise of the option, be significantly different from the market value. When a Fund writes a call or put, an amount equal to the premium received is recorded and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are added to the proceeds or offset against amounts paid on the underlying futures, swap or security transaction to determine the realized gain (loss). When a Fund purchases an option, the Fund pays a premium which is included as an asset on the Statement of Financial Condition and subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options which expire are treated as realized losses. The risk associated with purchasing put and call options is limited to the premium paid. Premiums paid for purchasing options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying investment transaction to determine the realized gain (loss) when the underlying transaction is executed. Certain options transactions may subject the writer (seller) to unlimited risk of loss in the event of an increase in the price of the contract to be purchased or delivered. The value of a Fund’s options transactions, if any, will be affected by, among other things, changes in the value of a Fund’s underlying benchmark relative to the strike price, changes in interest rates, changes in the actual and implied volatility of the Fund’s underlying benchmark, and the remaining time until the options expire, or any combination thereof. The value of the options should not be expected to increase or decrease at the same rate as the level of the Fund’s underlying benchmark, which may contribute to tracking error. Options may be less liquid than certain other securities. A Fund’s ability to trade options will be dependent on the willingness of counterparties to trade such options with the Fund. In a less liquid market for options, a Fund may have difficulty closing out certain option positions at desired times and prices. A Fund may experience substantial downside from specific option positions and certain option positions may expire worthless. Over-the-counter options generally are not assignable except by agreement between the parties concerned, and no party or purchaser has any obligation to permit such assignments. The over-the-counter market for options is relatively illiquid, particularly for relatively small transactions. The use of options transactions exposes a Fund to liquidity risk and counterparty credit risk, and in certain circumstances may expose the Fund to unlimited risk of loss. The Funds may buy and sell options on futures contracts, which may present even greater volatility and risk of loss. Swap Agreements The Funds may enter into swap agreements for purposes of pursuing their investment objectives or as a substitute for investing directly in (or shorting) an underlying Index or to create an economic hedge against a position. Swap agreements are two-party contracts that have traditionally been entered into primarily with institutional investors in over-the-counter (“OTC”) markets for a specified period, ranging from a day to more than one year. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) provides for significant reforms of the OTC derivative markets, including a requirement to execute certain swap transactions on a CFTC-regulated market and/or to clear such transactions through a CFTC-regulated central clearing organization. In a standard swap transaction, two parties agree to exchange the returns earned or realized on a particular predetermined investment, instrument or Index in exchange for a fixed or floating rate of return in respect of a predetermined notional amount. Transaction or commission costs are reflected in the benchmark level at which the transaction is entered into. The gross returns to be exchanged are calculated with respect to a notional amount and the benchmark returns to which the swap is linked. Swap agreements do not involve the delivery of underlying instruments. Generally, swap agreements entered into by the Funds calculate and settle the obligations of the parties to the agreement on a “net basis” with a single payment. Consequently, each Fund’s current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of such obligations (or rights) (the “net amount”). In a typical swap agreement entered into by UVIX, the would be entitled to settlement payments in the event the level of the benchmark increases and would be required to make payments to the swap counterparties in the event the level of the benchmark decreases, adjusted for any transaction costs or trading spreads on the notional amount the Funds may pay. In a typical swap agreement entered into by SVIX, the Fund would be required to make payments to the swap counterparties in the event the level of the benchmark increases and would be entitled to settlement payments in the event the level of the benchmark decreases, adjusted for any transaction costs or trading spreads on the notional amount the Funds may pay. The net amount of the excess, if any, of each Fund’s obligations over its entitlements with respect to each OTC swap agreement is accrued on a daily basis and an amount of cash and/or securities having an aggregate value at least equal to such accrued excess is maintained for the benefit of the counterparty in a segregated account by the Funds’ Custodian. The net amount of the excess, if any, of each Fund’s entitlements over its obligations with respect to each OTC swap agreement is accrued on a daily basis and an amount of cash and/or securities having an aggregate value at least equal to such accrued excess is maintained for the benefit of the Fund in a segregated account by a third party custodian. Until a swap agreement is settled in cash, the gain or loss on the notional amount less any transaction costs or trading spreads payable by each Fund on the notional amount are recorded as “unrealized appreciation or depreciation on swap agreements” and, when cash is exchanged, the gain or loss realized is recorded as “realized gains or losses on swap agreements.” Swap agreements are generally valued at the last settled price of the benchmark referenced asset. Swap agreements contain various conditions, events of default, termination events, covenants and representations. The triggering of certain events or the default on certain terms of the agreement could allow a party to terminate a transaction under the agreement and request immediate payment in an amount equal to the net positions owed to the party under the agreement. This could cause a Fund to have to enter into a new transaction with the same counterparty, enter into a transaction with a different counterparty or seek to achieve its investment objective through any number of different investments or investment techniques. Swap agreements involve, to varying degrees, elements of market risk and exposure to loss in excess of the unrealized gain/loss reflected. The notional amounts reflect the extent of the total investment exposure each Fund has under the swap agreement, which may exceed the NAV of each Fund. Additional risks associated with the use of swap agreements are imperfect correlations between movements in the notional amount and the price of the underlying reference Index and the inability of counterparties to perform. Each Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. A Fund will typically enter into swap agreements only with major global financial institutions. The creditworthiness of each of the firms that is a party to a swap agreement is monitored by the Sponsor. The Sponsor may use various techniques to minimize credit risk including early termination and payment, using different counterparties, limiting the net amount due from any individual counterparty and generally requiring collateral to be posted by the counterparty in an amount approximately equal to that owed to the Funds. Outstanding swap agreements contractually terminate within one month but may be terminated without penalty by either party at any time. Upon termination, the Fund is obligated to pay or receive the “unrealized appreciation or depreciation” amount. The Funds, as applicable, collateralize swap agreements by segregating or designating cash and/or certain securities as indicated on the Statements of Financial Condition or Schedules of Investments. As noted above, collateral posted in connection with OTC derivative transactions is held for the benefit of the counterparty in a segregated tri-party account at the Custodian to protect the counterparty against non-payment by the Funds. The collateral held in this account is restricted as to its use. In the event of a default by the counterparty, the Funds will seek withdrawal of this collateral from the segregated account and may incur certain costs in exercising its right with respect to the collateral. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Funds may experience significant delays in obtaining any recovery in a bankruptcy or other reorganizational proceeding. The Funds may obtain only limited recovery or may obtain no recovery in such circumstances. The Funds remain subject to credit risk with respect to the amount they expect to receive from counterparties. However, the Funds have sought to mitigate these risks in connection with OTC swaps by generally requiring that the counterparties for each Fund agree to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to what the counterparty owes the Fund, subject to certain minimum thresholds. In the event of a bankruptcy of a counterparty, such Fund will have direct access to the collateral received from the counterparty, generally as of the day prior to the bankruptcy, because there is a one day time lag between the Fund’s request for collateral and the delivery of such collateral. To the extent any such collateral is insufficient, the Funds will be exposed to counterparty risk as described above, including the possible delays in recovering amounts as a result of bankruptcy proceedings. The counterparty/credit risk for cleared derivative transactions is generally lower than for OTC derivatives since generally a clearing organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties’ performance under the contract as each party to a trade looks only to the clearing organization for performance of financial obligations. In addition, cleared derivative transactions benefit from daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries.
Fair Values of Derivative Instruments as of June 30, 2023 (Unaudited) |
|  |  |  | Asset Derivatives |  |  | Liability Derivatives |
Derivatives Not Accounted for as Hedging Instruments |  | Fund |  | Statements of Financial Condition Location |  | Unrealized Appreciation |  |  | Statements of Financial Condition Location |  | Unrealized Depreciation |
VIX Futures Contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | -1x Short VIX Futures ETF |  |  |  | $ | 6,518,579 |  |  |  |  | $ | - |
|  | 2x Long VIX Futures ETF |  |  |  |  | - |  |  |  |  |  | (19,791,036 | )
|  | Total Trust |  |  |  | $ | 6,518,579 |  |  |  |  | $ | (19,791,036 | )
| * | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Financial Condition in receivable/payable on open futures.
Fair Values of Derivative Instruments as of December 31, 2022 |
|  |  |  | Asset Derivatives |  |  | Liability Derivatives |
Derivatives Not Accounted for as Hedging Instruments |  | Fund |  | Statements of Financial Condition Location |  | Unrealized Appreciation |  |  | Statements of Financial Condition Location |  | Unrealized Depreciation |
VIX Futures Contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | -1x Short VIX Futures ETF |  |  |  | $ | 1,156,106 |  |  |  |  | $ | - |
|  | 2x Long VIX Futures ETF |  |  |  |  | - |  |  |  |  |  | (9,203,522 | )
|  | Total Trust |  |  |  | $ | 1,156,106 |  |  |  |  | $ | (9,203,522 | )
| * | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Financial Condition in receivable/payable on open futures.
The Effect of Derivative Instruments on the Statement of Operations
For the Three Months Ended June 30, 2023 (Unaudited) and June 30, 2022 (Unaudited)
Derivatives Not Accounted for as Hedging Instruments |  | Location of Gain (Loss) on Derivatives Recognized in Income |  | Fund |  | Realized Gain (Loss) on Derivatives Recognized in Income June 30, 2023 |  |  | Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income June 30, 2023 |  |  | Realized Gain (Loss) on Derivatives Recognized in Income June 30, 2022 |  |  | Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income June 30, 2022 |
VIX Futures Contracts |  | Net realized gain (loss) on futures contracts/changes in unrealized appreciation (depreciation) on futures contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  | -1x Short VIX Futures ETF |  | $ | 37,164,451 |  |  | $ | (811,301 | ) |  | $ | (4,573,051 | ) |  | $ | 835,808 |
|  |  |  | 2x Long VIX Futures ETF |  |  | (142,872,642 | ) |  |  | (4,374,661 | ) |  |  | 7,528,449 |  |  |  | (256,944 | )
|  |  |  | Total Trust |  | $ | (105,708,191 | ) |  | $ | (5,185,962 | ) |  | $ | 2,955,398 |  |  | $ | 578,864 |
| * | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Financial Condition in receivable/payable on open futures.
The Effect of Derivative Instruments on the Statement of Operations
For the Six Months Ended June 30, 2023 (Unaudited) and June 30, 2022 (Unaudited)
Derivatives Not Accounted for as Hedging Instruments |  | Location of Gain (Loss) on Derivatives Recognized in Income |  | Fund |  | Realized Gain (Loss) on Derivatives Recognized in Income June 30, 2023 |  |  | Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income June 30, 2023 |  |  | Realized Gain (Loss) on Derivatives Recognized in Income June 30, 2022 |  |  | Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income June 30, 2022 |
VIX Futures Contracts |  | Net realized gain (loss) on futures contracts/changes in unrealized appreciation (depreciation) on futures contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  | -1x Short VIX Futures ETF |  | $ | 42,451,505 |  |  | $ | 5,362,473 |  |  | $ | (4,577,129 | ) |  | $ | 700,531 |
|  |  |  | 2x Long VIX Futures ETF |  |  | (186,102,397 | ) |  |  | (10,587,514 | ) |  |  | 7,527,995 |  |  |  | 19,258 |
|  |  |  | Total Trust |  | $ | (143,650,892 | ) |  | $ | (5,225,041 | ) |  | $ | 2,950,866 |  |  | $ | 719,789 |
| * | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Financial Condition in receivable/payable on open futures.
Offsetting Assets and Liabilities Each Fund is subject to master netting agreements or similar arrangements that allow for amounts owed between each Fund and the counterparty to be netted upon an early termination. The party that has the larger payable pays the excess of the larger amount over the smaller amount to the other party. The master netting agreements or similar arrangements do not apply to amounts owed to/from different counterparties. As described above, the Funds utilize derivative instruments to achieve their investment objective during the year. The amounts shown in the Statements of Financial Condition do not take into consideration the effects of legally enforceable master netting agreements or similar arrangements. For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statements of Financial Condition. The following table presents each Fund’s derivatives by investment type and by counterparty net of amounts available for offset under a master netting agreement and the related collateral received or pledged by the Funds as of June 30, 2023 and December 31, 2022.
Fair Values of Derivative Instruments as of June 30, 2023 (Unaudited)
|  | Assets |  |  | Liabilities |
Fund |  | Gross Amounts of Recognized Assets presented in the Statements of Financial Condition |  |  | Gross Amounts Offset in the Statements of Financial Condition |  |  | Net Amounts of Assets presented in the Statements of Financial Condition |  |  | Gross Amounts of Recognized Liabilities presented in the Statements of Financial Condition |  |  | Gross Amounts Offset in the Statements of Financial Condition |  |  | Net Amounts of Liabilities presented in the Statements of Financial Condition |
-1x Short VIX Futures ETF |  | $ | 1,242,108 |  |  | $ | - |  |  | $ | 1,242,108 |  |  | $ | - |  |  | $ | - |  |  | $ | - |
2x Long VIX Futures ETF |  |  | - |  |  |  | - |  |  |  | - |  |  | $ | 3,406,049 |  |  |  | - |  |  |  | 3,406,049 |
Fair Values of Derivative Instruments as of December 31, 2022
|  | Assets |  |  | Liabilities |
Fund |  | Gross Amounts of Recognized Assets presented in the Statements of Financial Condition |  |  | Gross Amounts Offset in the Statements of Financial Condition |  |  | Net Amounts of Assets presented in the Statements of Financial Condition |  |  | Gross Amounts of Recognized Liabilities presented in the Statements of Financial Condition |  |  | Gross Amounts Offset in the Statements of Financial Condition |  |  | Net Amounts of Liabilities presented in the Statements of Financial Condition |
-1x Short VIX Futures ETF |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 187,030 |  |  | $ | - |  |  | $ | 187,030 |
2x Long VIX Futures ETF |  |  | 830,840 |  |  |  | - |  |  |  | 830,840 |  |  |  | - |  |  |  | - |  |  |  | - |
Asset (Liability) amounts shown in the table below represent amounts owed to (by) the Funds for the derivative-related investments at June 30, 2023 and December 31, 2022. These amounts may be collateralized by cash or financial instruments, segregated for the benefit of the Funds or the counterparties, depending on whether the related contracts are in an appreciated or depreciated position at period end. Amounts shown in the column labeled “Net Amount” represent the uncollateralized portions of these amounts at period end. These amounts may be un-collateralized due to timing differences related to market movements or due to minimum thresholds for collateral movement, as further described above under the caption “Accounting for Derivative Instruments”.
Gross Amounts Not Offset in the Statements of Financial Condition as of June 30, 2023 (Unaudited)
Fund |  | Amounts of Recognized Assets / (Liabilities) presented in the Statements of Financial Condition |  |  | Financial Instruments for the Benefit of (the Funds) / the Counterparties |  |  | Cash Collateral for the Benefit of (the Funds) / the Counterparties |  |  | Net Amount |
-1x Short VIX Futures ETF |  | $ | 1,242,108 |  |  | $ | - |  |  | $ | - |  |  | $ | 1,242,108 |
2x Long VIX Futures ETF |  |  | (3,406,049 | ) |  |  | - |  |  |  | - |  |  |  | (3,406,049 | )
Gross Amounts Not Offset in the Statements of Financial Condition as of December 31, 2022
Fund |  | Amounts of Recognized Assets / (Liabilities) presented in the Statements of Financial Condition |  |  | Financial Instruments for the Benefit of (the Funds) / the Counterparties |  |  | Cash Collateral for the Benefit of (the Funds) / the Counterparties |  |  | Net Amount |
-1x Short VIX Futures ETF |  | $ | (187,030 | ) |  | $ | - |  |  | $ | - |  |  | $ | (187,030 | )
2x Long VIX Futures ETF |  |  | 830,840 |  |  |  | - |  |  |  | - |  |  |  | 830,840 |

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