What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-05-16 · 160 added, 159 removed, 219 unchanged (59% of the section changed)

Management’s Discussion

and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and

Analysis of Financial Condition and Results of Operations.

This information should be read in conjunction

with the financial statements and notes to the financial statements included with this Quarterly Report on Form 10-Q.

The discussion

and analysis that follows may contain statements that relate to future events or future performance.

In some cases, such forward-looking

statements can be identified by terminology such as “will,” “may,” “should,” “expect,”

“plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,”

“intend,” “project,” “seek” or the negative of these terms or other comparable terminology.

of the Trust, the Sponsor, the Trustee, or the Administrator assumes responsibility for the accuracy or completeness of any forward-looking

Except as expressly required by federal securities laws, none of the Trust, the Sponsor, the Trustee, or the Administrator

is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in expectations

or predictions.

The discussion and

analysis that follows may contain statements that relate to future events or future performance.

In some cases, such forward-looking statements

can be identified by terminology such as “will,” “may,” “should,” “expect,” “plan,”

“anticipate,” “believe,” “estimate,” “predict,” “potential,” “intend,”

“project,” “seek” or the negative of these terms or other comparable terminology.

None of the Trust, the Sponsor,

the Trustee, or the Administrator assumes responsibility for the accuracy or completeness of any forward-looking statements.

expressly required by federal securities laws, none of the Trust, the Sponsor, the Trustee, or the Administrator is under a duty to update

any of the forward-looking statements to conform such statements to actual results or to a change in expectations or predictions.

Because forward-looking statements relate

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the “Funds”).

As of March 31, 2022, the following two series of the Trust have commenced investment operations:

VIX Futures ETF and 2x Long VIX Futures ETF.

As of June 30, 2022, the following two series of the Trust have commenced investment operations:

-1x Short VIX

Futures ETF and 2x Long VIX Futures ETF.

Each of the Funds listed above issues common units of beneficial interest (“Shares”),

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not for any other period.

UVIX seeks daily investment results, before fees and expenses, that correspond to twice the performance of

the Long VIX Futures Index (the “Long Index”).

UVIX seeks daily investment results, before fees and expenses, that correspond to twice the performance of the

Long VIX Futures Index (the “Long Index”).

A “single day” is measured from the time a Fund calculates

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through the appropriate amount of exposure to the VIX futures contracts included in their respective index.

The Funds also

have the ability to engage in options transactions, swaps, forward contracts and other instruments in order to achieve their investment

objective, in the manner and to the extent described herein.

SVIX is not benchmarked to the inverse of, and

UVIX is not benchmarked to twice, the widely referenced VIX.

The Funds also have

the ability to engage in options transactions, swaps, forward contracts and other instruments in order to achieve their investment objective,

in the manner and to the extent described herein.

SVIX is not benchmarked to the inverse of, and UVIX

is not benchmarked to twice, the widely referenced VIX.

The Short Index and the inverse of the VIX are separate measurements

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basis to Authorized Participants in Creation Units at NAV.

Authorized Participants may then offer to the public, from time

to time, Shares from any Creation Unit they create at a per-Share market price.

The form of Authorized Participant Agreement and the

related Authorized Participant Procedures Handbook set forth the terms and conditions under which an Authorized Participant may purchase

or redeem a Creation Unit.

Authorized Participants will not receive from a Fund, the Sponsor, or any of their affiliates, any fee or

other compensation in connection with their sale of Shares to the public.

An Authorized Participant may receive commissions or fees from

investors who purchase Shares through their commission or fee-based brokerage accounts.

Authorized Participants may then offer to the public, from time to

time, Shares from any Creation Unit they create at a per-Share market price.

The form of Authorized Participant Agreement and the related

Authorized Participant Procedures Handbook set forth the terms and conditions under which an Authorized Participant may purchase or redeem

a Creation Unit.

Authorized Participants will not receive from a Fund, the Sponsor, or any of their affiliates, any fee or other compensation

in connection with their sale of Shares to the public.

An Authorized Participant may receive commissions or fees from investors who purchase

Shares through their commission or fee-based brokerage accounts.

The form of Authorized Participant Agreement

and related Authorized Participant Handbook set forth the terms and conditions under which an Authorized Participant may purchase or

redeem a Creation Unit.

Authorized Participants do not receive from any Fund, the Sponsor, or any of their affiliates, any underwriting

fees or compensation in connection with their sale of Shares to the public.

and related Authorized Participant Handbook set forth the terms and conditions under which an Authorized Participant may purchase or redeem

a Creation Unit.

Authorized Participants do not receive from any Fund, the Sponsor, or any of their affiliates, any underwriting fees

or compensation in connection with their sale of Shares to the public.

The Sponsor maintains a website at www.volatilityshares.com,

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ended March 31, 2022, each of the Funds earned interest income as follows:

Interest Income

Three Months Ended

June 30, 2022

-1x Short VIX Futures ETF

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asset at a specified time and place or alternatively may call for cash settlement.

Futures contracts are traded on a wide variety of

underlying assets, including bonds, interest rates, agricultural products, stock indexes, currencies, energy, metals, economic indicators

and statistical measures.

The notional size and calendar term futures contracts on a particular underlying asset are identical and are

not subject to any negotiation, other than with respect to price and the number of contracts traded between the buyer and seller.

generally deposits cash and/or securities with an FCM for its open positions in futures contracts, which may, in turn, transfer such

deposits to the clearinghouse to protect the clearing house against non-payment by the Fund.

The clearing house becomes substituted for

each counterparty to a futures contract, and, in effect, guarantees performance.

In addition, the FCM may require a Fund to deposit collateral

in excess of the clearing house’s margin requirements for the FCM’s own protection.

Futures contracts are traded on a wide variety of underlying

assets, including bonds, interest rates, agricultural products, stock indexes, currencies, energy, metals, economic indicators and statistical

The notional size and calendar term futures contracts on a particular underlying asset are identical and are not subject to

any negotiation, other than with respect to price and the number of contracts traded between the buyer and seller.

A Fund generally deposits

cash and/or securities with an FCM for its open positions in futures contracts, which may, in turn, transfer such deposits to the clearinghouse

to protect the clearing house against non-payment by the Fund.

The clearing house becomes substituted for each counterparty to a futures

contract, and, in effect, guarantees performance.

In addition, the FCM may require a Fund to deposit collateral in excess of the clearing

house’s margin requirements for the FCM’s own protection.

Certain futures contracts, including stock index

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For other futures contracts, the contractual obligations of a buyer or seller

may generally be satisfied by taking or making physical delivery of the underlying asset 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.

may generally be satisfied by taking or making physical delivery of the underlying asset 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.

The difference between the price

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commissions and exchange fees, constitutes the profit or loss to the trader.

Futures contracts involve, to varying degrees,

elements of market risk and exposure to loss in excess of the amounts of variation margin, which are the amounts of cash that a Fund

agrees to pay to or receive from FCMs equal to the daily fluctuation in the value of a futures contract.

Additional risks associated

with the use of futures contracts are imperfect correlation between movements in the price of the futures contracts and the level of

the underlying benchmark and the possibility of an illiquid market for a futures contract.

With futures contracts, there is minimal but

some counterparty risk to a Fund since futures contracts are exchange traded and the exchange’s clearing house, as counterparty

to all exchange-traded futures contracts, effectively guarantees futures contracts against default.

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

If trading is not possible or if a Fund determines not to close a futures position in anticipation of adverse price movements,

the Fund may be required to make daily cash payments of variation margin.

Futures contracts involve, to varying degrees, elements

of market risk and exposure to loss in excess of the amounts of variation margin, which are the amounts of cash that a Fund agrees to

pay to or receive from FCMs equal to the daily fluctuation in the value of a futures contract.

Additional risks associated with the use

of futures contracts are imperfect correlation between movements in the price of the futures contracts and the level of the underlying

benchmark and the possibility of an illiquid market for a futures contract.

With futures contracts, there is minimal but some counterparty

risk to a Fund since futures contracts are exchange traded and the exchange’s clearing house, as counterparty to all exchange-traded

futures contracts, effectively guarantees futures contracts against default.

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

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 may be required to make daily cash payments

of variation margin.

Futures Account Agreements

Each Fund has entered into a written agreement

(each, a “Futures Account Agreement”) with one or more FCMs governing the terms of futures transactions of a Fund cleared

Each Fund has entered into a written agreement (each,

a “Futures Account Agreement”) with one or more FCMs governing the terms of futures transactions of a Fund cleared by such

Each FCM has its own agreement and other documentation used for establishing customer relationships.

As such, the terms

of the Futures Account Agreement and other documentation that a Fund has with a particular FCM may differ in material respects from that

with another FCM.

Most Futures Account Agreements do not require

the FCM to enter into new transactions or maintain existing transactions with a Fund.

In general, each FCM is permitted to terminate

its agreement with a Fund at any time in its sole discretion.

In addition, an FCM generally will have the discretion to set margin requirements

and/or position limits that would be in addition to any margin requirements and/or position limits required by applicable law, set by

the exchange, or set by the clearing house that clears the futures contracts in which a Fund transacts.

As a result, a Fund’s ability

to engage in futures transactions or maintain open positions in such contracts will be dependent on the willingness of its FCMs to continue

to accept or maintain such transactions on terms that are economically appropriate for a Fund’s investment strategy.

As such, the terms of the

Futures Account Agreement and other documentation that a Fund has with a particular FCM may differ in material respects from that with

Most Futures Account Agreements do not require the

FCM to enter into new transactions or maintain existing transactions with a Fund.

In general, each FCM is permitted to terminate its agreement

with a Fund at any time in its sole discretion.

In addition, an FCM generally will have the discretion to set margin requirements and/or

position limits that would be in addition to any margin requirements and/or position limits required by applicable law, set by the exchange,

or set by the clearing house that clears the futures contracts in which a Fund transacts.

As a result, a Fund’s ability to engage

in futures transactions or maintain open positions in such contracts will be dependent on the willingness of its FCMs to continue to accept

or maintain such transactions on terms that are economically appropriate for a Fund’s investment strategy.

When a Fund has an open futures contract position,

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margin requirements of the FCM).

In the event that market movements favorable to a Fund result in the Fund having posted more margin

than is required, the Fund typically would have a right to return of margin from the FCM.

However, the timing of such return may

be uncertain.

As a result, it is possible that a Fund may face liquidity constraints including potential delays in its ability to pay

redemption proceeds, where margin is not immediately returned by an FCM.

In the event that market movements favorable to a Fund result in the Fund having posted more margin than

is required, the Fund typically would have a right to return of margin from the FCM.

However, the timing of such return may be uncertain.

As a result, it is possible that a Fund may face liquidity constraints including potential delays in its ability to pay redemption proceeds,

where margin is not immediately returned by an FCM.

In the event that a Fund fails to comply with its

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the Fund will remain liable for paying to the relevant FCM, on demand, the amount of any deficiency in a Fund’s account with that

The Futures Account Agreement between the Fund

and an FCM generally requires the Fund to indemnify and hold harmless the FCM, its directors, officers, employees, agents and affiliates

(collectively, “indemnified persons”) from and against all claims, damages, losses and costs (including reasonable attorneys’

fees) incurred by the indemnified persons, in connection with:

(1) any failure by the Fund to perform its obligations under the

Futures Account Agreement and the FCM’s exercise of its rights and remedies thereunder;

(2) any failure by the Fund to comply

with applicable law;

(3) any action reasonably taken by the indemnified persons pursuant to the Futures Account Agreement to comply

with applicable law;

and (4) any actions taken by the FCM in reliance on instructions, notices and other communications that the

FCM and its relevant personnel, as applicable, reasonably believes to originate from a person authorized to act on behalf of the Fund.

The Futures Account Agreement between the Fund and

an FCM generally requires the Fund to indemnify and hold harmless the FCM, its directors, officers, employees, agents and affiliates (collectively,

“indemnified persons”) from and against all claims, damages, losses and costs (including reasonable attorneys’ fees)

incurred by the indemnified persons, in connection with:

(1) any failure by the Fund to perform its obligations under the Futures

Account Agreement and the FCM’s exercise of its rights and remedies thereunder;

(2) any failure by the Fund to comply with

applicable law;

(3) any action reasonably taken by the indemnified persons pursuant to the Futures Account Agreement to comply with

applicable law;

and (4) any actions taken by the FCM in reliance on instructions, notices and other communications that the FCM and

its relevant personnel, as applicable, reasonably believes to originate from a person authorized to act on behalf of the Fund.

To the extent that the Fund trades in futures contracts

exchanges, the assets deposited by the Fund with the FCMs (or another eligible financial institution, as applicable) as

margin must be segregated pursuant to the regulations of the CFTC.

Such segregated funds may be invested only in a limited range

of instruments — principally U.S.

exchanges, the assets deposited by the Fund with the FCMs (or another eligible financial institution, as applicable) as margin

must be segregated pursuant to the regulations of the CFTC.

Such segregated funds may be invested only in a limited range of instruments — principally

government obligations to margin futures and forward contract positions.

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Put and call options are traded on national securities exchanges and in the OTC market.

Options traded

on national securities exchanges are within the jurisdiction of the SEC or other appropriate national securities regulator, as are securities

Options traded on

national securities exchanges are within the jurisdiction of the SEC or other appropriate national securities regulator, as are securities

traded on such exchanges.

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cleared and guaranteed by the Options Clearing Corporation, thereby reducing the risk of counterparty default.

Furthermore, a liquid

secondary market in options traded on a national securities exchange may be more readily available than in the OTC market, potentially

permitting a Fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse

market movements.

There is no assurance, however, that higher than anticipated trading activity or other unforeseen events might not

temporarily render the capabilities of the Options Clearing Corporation inadequate, and thereby result in the exchange instituting special

procedures which may interfere with the timely execution of a Fund’s orders to close out open options positions.

Furthermore, a liquid secondary

market in options traded on a national securities exchange may be more readily available than in the OTC market, potentially permitting

a Fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements.

There is no assurance, however, that higher than anticipated trading activity or other unforeseen events might not temporarily render

the capabilities of the Options Clearing Corporation inadequate, and thereby result in the exchange instituting special procedures which

may interfere with the timely execution of a Fund’s orders to close out open options positions.

Swap Agreements

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closed out on a net basis, i.e.

, the two payment streams are netted out in a cash settlement on the payment date specified in

the agreement, with the parties receiving or paying, as the case may be, only the net amount of the two payments.

, the two payment streams are netted out in a cash settlement on the payment date specified in the

agreement, with the parties receiving or paying, as the case may be, only the net amount of the two payments.

Thus, while the notional

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no party or purchaser has any obligation to permit such assignments.

Swaps involve, to varying degrees, elements of

market risk and exposure to loss in excess of the amount which would be reflected on a Fund’s Statement of Financial Condition.

In addition to market risk and other risks, the use of swaps also comes with counterparty credit risk — i.e.

the inability of a counterparty to a swap to perform its obligations.

A Fund that invests in swaps bears the risk of loss of the net

amount, if any, expected to be received under a swap agreement in the event of the default or bankruptcy of a swap counterparty.

enters or intends to enter into swaps only with major, global financial institutions.

However, there are no limitations on the percentage

of its assets a Fund may invest in swaps with a particular counterparty.

Swaps involve, to varying degrees, elements of market

risk and exposure to loss in excess of the amount which would be reflected on a Fund’s Statement of Financial Condition.

to market risk and other risks, the use of swaps also comes with counterparty credit risk — i.e.

, the inability

of a counterparty to a swap to perform its obligations.

A Fund that invests in swaps bears the risk of loss of the net amount, if any,

expected to be received under a swap agreement in the event of the default or bankruptcy of a swap counterparty.

A Fund enters or intends

to enter into swaps only with major, global financial institutions.

However, there are no limitations on the percentage of its assets

a Fund may invest in swaps with a particular counterparty.

A Fund that invests in swaps may use various techniques

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amount” to counterparties in swaps.

Such collateral serves as protection for the counterparty in the event of a failure by the

Fund and is in addition to any mark-to-market collateral that ( i.e.

, the Fund may post initial margin to the counterparty even

where the counterparty would owe money to the Fund if the swap were to be terminated).

The amount of initial margin posted by the Fund

may vary depending on the risk profile of the swap.

The collateral, whether for mark-to-market or for initial margin, generally consists

of cash and/or securities.

Such collateral serves as protection for the counterparty in the event of a failure by the Fund

and is in addition to any mark-to-market collateral that ( i.e.

, the Fund may post initial margin to the counterparty even where

the counterparty would owe money to the Fund if the swap were to be terminated).

The amount of initial margin posted by the Fund may vary

depending on the risk profile of the swap.

The collateral, whether for mark-to-market or for initial margin, generally consists of cash

and/or securities.

Collateral posted by a Fund to a counterparty in

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In the event of a default

by the counterparty where the Fund is owed money in the uncleared swap transaction, the Fund will seek withdrawal of this collateral

from the segregated account.

by the counterparty where the Fund is owed money in the uncleared swap transaction, the Fund will seek withdrawal of this collateral from

the segregated account.

The Fund may incur certain costs exercising its right with respect to the collateral.

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Off-Balance Sheet Arrangements and Contractual

As of March 31, 2022, the Funds have not

used, nor do they expect to use in the future, special purpose entities to facilitate off-balance sheet financing arrangements and have

no loan guarantee arrangements or off-balance sheet arrangements of any kind other than agreements entered into in the normal course

of business, which may include indemnification provisions related to certain risks service providers undertake in performing services

which are in the best interests of the Funds.

While each Fund’s exposure under such indemnification provisions cannot be estimated,

these general business indemnifications are not expected to have a material impact on a Fund’s financial position.

As of June 30, 2022, the Funds have not used,

nor do they expect to use in the future, special purpose entities to facilitate off-balance sheet financing arrangements and have no loan

guarantee arrangements or off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business,

which may include indemnification provisions related to certain risks service providers undertake in performing services which are in

the best interests of the Funds.

While each Fund’s exposure under such indemnification provisions cannot be estimated, these general

business indemnifications are not expected to have a material impact on a Fund’s financial position.

Management fee payments made to the Sponsor

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of appropriate accounting rules and guidance, as well as the use of estimates.

The Trust’s and the Funds’ application of

these policies involves judgments and actual results may differ from the estimates used.

The Trust’s and the Funds’ application of these

policies involves judgments and actual results may differ from the estimates used.

Each Fund has significant exposure to Financial

The Funds hold a significant portion of their assets in futures, all of which are recorded on a trade date basis and at

fair value in the financial statements, with changes in fair value reported in the Statements of Operations.

The Funds hold a significant portion of their assets in futures, all of which are recorded on a trade date basis and at fair

value in the financial statements, with changes in fair value reported in the Statements of Operations.

The use of fair value to measure Financial

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Funds’ financial statements.

The fair value of a Financial Instrument is the amount that would be received to sell an asset or

paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).

The fair value of a Financial Instrument is the amount that would be received to sell an asset or paid

to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).

For financial reporting purposes, the Funds

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Accordingly, the investment valuations in these financial statements

may differ from those used in the calculation of certain Funds’ final creation/redemption NAV for the period ended March 31, 2022.

may differ from those used in the calculation of certain Funds’ final creation/redemption NAV for the period ended June 30, 2022.

Short-term investments are valued at amortized

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the basis for determining the market value of such position.

Such fair value prices would be generally determined based on available

inputs about the current value of the underlying financial instrument or commodity and would be based on principles that the Sponsor

deems fair and equitable so long as such principles are consistent with normal industry standards.

The Sponsor may fair value an asset

of a Fund pursuant to the policies the Sponsor has adopted, which are consistent with normal industry standards.

Depending on the source

and relevant significance of valuation inputs, these instruments may be classified as Level II or Level III in the fair value hierarchy.

Such fair value prices would be generally determined based on available inputs

about the current value of the underlying financial instrument or commodity and would be based on principles that the Sponsor deems fair

and equitable so long as such principles are consistent with normal industry standards.

The Sponsor may fair value an asset of a Fund

pursuant to the policies the Sponsor has adopted, which are consistent with normal industry standards.

Depending on the source and relevant

significance of valuation inputs, these instruments may be classified as Level II or Level III in the fair value hierarchy.

Fair value pricing may require subjective

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Each Fund pays its respective brokerage commissions,

including applicable exchange fees, NFA fees, give up fees, pit futures account fees and other transaction related fees and expenses

charged in connection with trading activities for each Fund’s investment in U.S.

Commodity Futures Trading Commission regulated

including applicable exchange fees, NFA fees, give up fees, pit futures account fees and other transaction related fees and expenses charged

in connection with trading activities for each Fund’s investment in U.S.

Commodity Futures Trading Commission regulated investments.

Brokerage commissions on futures contracts are recognized on a half-turn basis.

The Sponsor is currently paying brokerage

commissions in VIX futures contracts exceed variable create/redeem fees collected by more than 0.02% of the Fund’s average net

assets annually.

The Sponsor is currently paying brokerage commissions

in VIX futures contracts exceed variable create/redeem fees collected by more than 0.02% of the Fund’s average net assets annually.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis