The meltdown of the Velocity Shares Daily 2x VIX Short Term ETN which is more commonly referred to by its symbol,TVIX was quite the spectacle last week.The TVIX has been trading at a premium ever since Credit Suisse (CS) stopped creating new units last month due to internal size limits which caused a massive variance between the market price and IIV (the ETP equivalent of NAV)–it just blew up.

Any exchange traded product can have some sort of problem like trading at a discount or premium to its IIV but this is rarer with traditional stock and bond ETFs, and when it has happened with traditional ETFs it has lasted only a short time,as buyers tend to  accumulate ETFs selling at less than NAV. But make no mistake gaps can exist for months or years between NAV and share price of closed end funds.Even now; many funds containing anything related to mortgages sell at a discount ;the hangover from the 2008 crash and the flash crash .As well “trendy” ETFs [think "cloud", "social media"] ETFs can sell above NAV .

On Thursday the TVIX  plunged 29% for no reason that was immediately obvious during the regular session to the average investor. Traders  expected it to  tag along with the up move in the underlying VIX  today: Stocks were falling and traders’ demand for hedges was on the rise.

Fast forward to around 7:30 p.m. tonight, when Credit Suisse announced that it would reopen issuance of the product on a “limited” basis. The reopening is the event that triggered a plunge in the ETN’s value. The release included a warning that reopening could cause the premium in TVIX to evaporate, and that it would be tough to predict how the product will trade. Did Someone Know about the 7:30 announcement during the Thursday trading session; and bail out or short it on inside information?

Or is it that the trading community believes that they will be able to create these shares again in the near future, and if that’s the case then that’s why they are shorting it now in anticipation.

It sure seems to be a lot harder than you would think to craft a product that will accurately track and underlying index.Recall there have been strange action in the OIH, UNG and several others since 2008 .

Jim Cramer and Herb Greenberg notably have been outspoken critics of many leveraged ETF going so far as to name them as a contributing and facilitating factor in the market crash as traders short  the index down forcing the underlying elements of the etf down in a “tail wags the dog” fashion.

But this is different ! the VIX goes up TVIX goes down the VIX goes down the TVIX goes down .Heads you lose tails you lose.

In the meantime, if there’s a lesson for investors here, it’s that once creation units of a given ETF or ETN are suspended, there is really no telling how the product will trade from that point forward. The value becomes a black box of sorts. It is probably wise to avoid such products until their odd and unpredictable supply-demand dynamics are worked out.