| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
(a) Basis of Presentation Pursuant to rules and regulations of
the U.S. Securities and Exchange Commission (“SEC”), these financial statements are presented for the Trust as a whole, as
the SEC registrant and the Fund individually. The liabilities and expenses incurred, contracted for or otherwise existing with respect
to each series of the Trust shall be enforceable only against the assets of each series of the Trust and not against the assets of the
Trust generally or any other series. The Fund is an investment company and
accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification Topic 946 “Financial Services – Investment Companies”. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its financial statement. The financial statement has been
prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
(b) Use of Estimates The preparation of the financial statement
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of this financial statement. Actual results could differ from those estimates.
(c) Guarantees and Indemnifications Under the Funds’ organizational
documents, the Sponsor is indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition,
in the normal course of business, the Funds enter into contracts with service providers and others that provide general indemnification
clauses. The Funds’ maximum exposure under the contracts is unknown, as this would involve future claims that may be made against
the Funds.
(d) Income Taxes The Funds are classified as a partnership
for United States federal income tax purposes and treated as a separate entity from any other series of the Trust for U.S. federal income
tax purposes. Accordingly, the Fund does not expect to incur United States federal income taxes. No provision for federal, state, and
local income taxes has been made in the accompanying Statements of Assets and Liabilities, as shareholders are individually responsible
for their own income taxes, if any, on their allocable share of the Funds’ income, gain, loss, deductions, and other items. Management of the Funds has reviewed
all open tax years and major jurisdictions and concluded that there is no tax liability resulting from unrecognized tax benefits relating
to uncertain income tax positions taken or expected to be taken in future tax returns. The Funds are also not aware of any tax positions
for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
On an ongoing basis, management monitors its tax positions taken under the interpretation to determine if adjustments to conclusions are
necessary based on factors including, but not limited to, on-going analysis of tax law, regulation, and interpretations thereof.
(e) Organizational and Offering Costs All organizational and offering costs
for the Funds were borne by the Sponsor and are not subject to reimbursement.
(f) Investment Valuation The Funds value their investments
at fair value. Short-term investments are valued at amortized cost which approximates fair value for daily NAV purposes. For
financial reporting purposes, short-term investments are valued at their market price using information provided by a third-party
pricing service or market quotations. In each of these situations, valuations are typically categorized as Level I in the fair value
hierarchy. Derivatives (e.g., futures contracts,
options, swap agreements) are generally valued using independent sources and/or agreements with counterparties or other procedures as
determined by the Sponsor. Futures contracts are generally valued at the last settled price on the applicable exchange on which that futures
contract trades. For financial reporting purposes, all futures contracts are generally valued at the last settled price. Futures contracts
valuations are typically categorized as Level I in the fair value hierarchy. Swap agreement valuations are typically categorized as Level
II in the fair value hierarchy. The Sponsor may in its sole discretion choose to determine a fair value price as the basis for determining
the market value of such position. Such fair value prices would generally be 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 industry standards. The Sponsor may fair value an asset of a Fund pursuant to the policies the
Sponsor has adopted. 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
determinations about the value of an investment. While the Funds’ policies are intended to result in a calculation of its respective
Fund’s NAV that fairly reflects investment values as of the time of pricing, such Fund cannot ensure that fair values determined
by the Sponsor or persons acting at their direction would accurately reflect the price that a Fund could obtain for an investment if it
were to dispose of that investment as of the time of pricing (for instance, in a forced or distressed sale). The prices used by such Fund
may differ from the value that would be realized if the investments were sold and the differences could be material to the financial statements. The Funds disclose the fair value of
their investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The disclosure requirements
establish a fair value hierarchy that distinguishes between: (1) market participant assumptions developed based on market data obtained
from sources independent of the Funds (observable inputs); and (2) the Funds’ own assumptions about market participant assumptions
developed based on the best information available under the circumstances (unobservable inputs). The three levels defined by the disclosure
requirements hierarchy are as follows: Level I – Quoted prices (unadjusted)
in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level II – Inputs other than
quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly. Level II assets include
the following: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities
in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived
principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). Level III – Unobservable pricing
input at the measurement date for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable
inputs are not available. In some instances, the inputs used
to measure fair value might fall in different levels of the fair value hierarchy. The level in the fair value hierarchy within which the
fair value measurement in its entirety falls is determined based on the lowest input level that is significant to the fair value measurement
in its entirety. Fair value measurements also require
additional disclosure when the volume and level of activity for the asset or liability have significantly decreased, as well as when circumstances
indicate that a transaction is not orderly. The following table summarizes the
valuation of investments at September 30, 2022 using the fair value hierarchy:
ConvexityShares Daily 1.5x SPIKES Index Futures ETF Level 1 Level 2 Level 3 Total
Assets
Investments at Fair Value
Short-Term Investment $ 1,120,862 $ - $ - $ 1,120,862
Other Instruments
Futures Contracts (1) 565,697 - - 565,697
$ 1,686,559 $ - $ - $ 1,686,559
ConvexityShares 1x SPIKES Index Futures ETF Level 1 Level 2 Level 3 Total
Assets
Investments at Fair Value
Short-Term Investment $ 1,601,281 $ - $ - $ 1,601,281
Other Instruments
Futures Contracts (1) 351,726 - - 351,726
$ 1,953,007 $ - $ - $ 1,953,007
ConvexityShares Trust Combined Level 1 Level 2 Level 3 Total
Assets
Investments at Fair Value
Short-Term Investment $ 2,722,143 $ - $ - $ 2,722,143
Other Instruments
Futures Contracts (1) 917,423 - - 917,423
$ 3,639,566 $ - $ - $ 3,639,566
(1) Futures
contracts are valued at the net unrealized appreciation (depreciation) on the instrument as presented on the Schedules of Open Futures
contracts. For the period ended September 30, 2022, there were no transfers into or out of Level 3 securities.
(g) Investment Transactions and Related Income Investment transactions are recorded
on the trade date. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized appreciation
(depreciation) on open contracts are reflected in the Statements of Assets and Liabilities and changes in the unrealized appreciation
(depreciation) between periods are reflected in the Statements of Operations. Interest income is recognized on an
accrual basis and includes, where applicable, the amortization of premium or discount, and is reflected as Interest Income in the Statements
of Operations.
(i) 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 Funds’ Schedule of Open Futures Contracts. 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. For the period from May 13, 2022 to September
30, 2022, and for the three-months ended September 30, 2022, the average derivative volume is described below: Futures Contracts
Monthly Average Monthly Average
Fund Quantity Value
ConvexityShares Daily 1.5x SPIKES Futures ETF 166 4,800,650
ConvexityShares 1x SPIKES Futures ETF 104 2,986,000
ConvexityShares Trust (combined) 270 7,786,650
Statements of Assets and Liabilities
The effect of derivative instruments on the Statement of Assets and Liabilities as of September 30, 2022.
Fund Statement of Assets Fair Value
Assets Liabilities
Futures Contracts
SPIKES Volatility Index ConvexityShares Daily 1.5x SPIKES Futures ETF Variation margin for futures contracts 96,317 -
ConvexityShares 1x SPIKES Futures ETF Variation margin for futures contracts 58,376 -
- -
Total Futures Contracts $ 154,693 $ - Statements of Operations The effect of derivative instruments
on the Statements of Operations for the period from May 13, 2022 to September 30, 2022 and for the three-months ended September 30, 2022: Net Realized Gain on Derivatives
Futures
Derivatives Fund Contracts Total
SPIKES Volatility Index Futures ConvexityShares Daily 1.5x SPIKES Futures ETF $ 526,186 $ 526,186
SPIKES Volatility Index Futures ConvexityShares 1x SPIKES Futures ETF 365,490 365,490
Total $ 891,676 $ 891,676 Net Change in Unrealized
Appreciation (Depreciation) on Derivatives
Futures
Derivatives Fund Contracts Total
SPIKES Volatility Index Futures ConvexityShares Daily 1.5x SPIKES Futures ETF $ 565,697 $ 565,697
SPIKES Volatility Index Futures ConvexityShares 1x SPIKES Futures ETF 351,726 351,726
Total $ 917,423 $ 917,423 |
