How To Play Market Volatility With ETFs

Volatility has roared especially after trade war tensions took an ugly turn, sending the broad markets into a tailspin once again. China plans to impose new tariffs in the range of 5%-10% on $75 billion worth of imported goods from the United States in two stages — on Sep 1 and Dec 15. The move came in retaliation to the earlier proposed 10% tariff on an additional $300 billion of Chinese goods by President Donald Trump to be imposed on Sep 1.

In a counterattack, Trump raised tariffs on $550 billion worth of Chinese goods. Existing 25% tariffs on $250 billion goods will increase to 30% effective Oct 1 and the planned 10% tariffs on a further $300 billion in Chinese goods will be raised to 15% on Sep 1 and then Dec 15. Trump also ordered U.S. companies to look at alternative ways to make their products in the United States and close operations in China.

As a result, the volatility level represented by the CBOE Volatility Index (VIX) spiked about 19% in the last trading session, suggesting that market worries have started to set in. This fear gauge tends to outperform when markets are declining or fear-levels pertaining to the future are high.

Investors could definitely benefit from this trend. While they cannot directly buy this index, there are several ETF/ETN options available in the market that can provide some exposure to volatility. These products have proven to be short-time winners in turbulent times. Below, we have highlighted short-term volatility products that will steadily move higher as long as trade concerns linger:

Simple Volatility ETFs

iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report)

This is a popular option providing exposure to volatility that sees a truly impressive average volume of about 25.6 million shares a day. The note has amassed $896.4 million in AUM and charges 89 bps in fees per year. The ETN focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility in the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second months of VIX futures contracts.

1 2
View single page >> |

Disclosure: contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any specific ...

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.