Most equity market traders would love to have some volatility. The sudden moves on either side can help them make money. On the other hand, we have equity investors who dread it. But, an equity investor can get the most from it as well. An increase in volatility is generally associated with falling prices. Though that doesn’t happen all the time. But, when prices fall they provide a good entry point to equity investors who have the patience to hold on to their investment longer-term.
We would like to add here that, investors and traders who like to gain from price fluctuations should also understand the reason behind such moves. Take a decision based on your analysis.
So, we know equity markets are volatile. When it comes to the entire equity market, we have Cboe Volatility Index (VIX). The VIX Index reflects 30-day expected equity market volatility. It is based on real-time S&P 500 Index options prices. But, certain ETFs don’t track the performance of the Cboe Volatility Index.
We can not directly invest in VIX. But, there are certain Exchange-Traded Funds (ETFs) through which we can grab a trading opportunity. We should also understand that VIX ETFs investments are different from the regular investments we do. So, only those who understand the risks may invest. Equity price fluctuations are temporary. The market will adjust to the fundamentals. And, once it has adjusted, we won’t see the unusual spike in prices. And, that is the time we VIX begins to fall. And, so does our value of investments.
Investments in VIX ETFs should be done for a shorter-time frame. If we keep holding onto our investments longer-term then, we may not be in for a favorable outcome. So, trade these ETFs when you think there will be a spike in volatility.
Furthermore, it should be utilized by only those investors who understand the risks associated with such complex instruments.
The 4 VIX ETFs, we cover in this article, are:
- ProShares Ultra VIX Short-Term Futures ETF (Ticker: UVXY),
- iPath Series B S&P 500 VIX Short-Term FuturesTM ETN (Ticker: VXX),
- ProShares VIX Mid-Term Futures ETF (Ticker: VIXM),
- 2x Long VIX Futures ETF (Ticker: UVIX).
We start with ProShares Ultra VIX Short-Term Futures ETF, for 1.5x the return of the S&P 500 VIX Short-Term Futures Index. Expense Ratio – 0.95%
iPath Series B S&P 500 VIX Short-Term FuturesTM ETN, tracks the performance of the S&P 500 VIX Short-Term FuturesTM Index Total Return. Investor Fee Rate – 0.89% pa.
ProShares VIX Mid-Term Futures ETF, tracks the performance of the S&P 500 VIX Mid-Term Futures Index. Expense Ratio – 0.85%
2x Long VIX Futures ETF, for 2x the return of Long VIX Futures Index.
Important: This material is provided only for information purposes only. It doesn’t constitute investment advice. We shouldn’t be held liable for the investment decisions readers take. We encourage readers to act at their discretion.
