UVXY is an exchange traded product from ProShares that is based purely on a calculation, which unlike other traded underlyings is not affected by direct supply and demand forces.

UVXY’s price is governed by a single effect; the percent change in a combination of front and second month VX futures on a daily basis. It’s unlike other free-floating underlyings where supply and demand forces are satisfied by the increase or decrease in price until those forces are equalized.

VX futures are the market’s expression of where it believes the VIX index will close at expiration of each futures contract. Supply and demand is a factor here though VX MUST respect the movements of VIX, so in that respect, supply and demand forces on VX are constrained.

VIX is the market’s expression of the risk for the degree of expected or ‘feared’ price changes to the S&P 500 index (SPX). It’s value is determined by calculating the size of SPX option extrinsics for a selected range of strikes and expirations. Supply and demand is a factor in option pricing though this effect is spread throughout the SPX option chain as any single contract move will be quickly arbitraged back into place.

How the sausage is made

Final values set during the previous session set up the next day’s action. For UVXY this is the NAV (Net Asset Value) which is set by ProShares, and it is the 4pm closing price for the VX futures contracts. As buyers and sellers trade SPX options the index changes in value. VX traders watch this movement and follow in suit, though almost always to a lesser degree than the index itself. VX’s price change gets expressed as a percentage and it is this percentage change, multiplied by UVXY’s 1.5x leverage, that changes UVXY’s price.

The ticker UVXY.IV (IV stands for Indicative or Intraday Value) is updated every 15 seconds and is the pure calculation of the levered percentage change in the VX contracts against the previous session’s NAV. UVXY.IV is never traded so immune from supply and demand forces, but when you overlay UVXY over UVXY.IV, you’ll see that there is almost no daylight between them.