How To Play Market Volatility With ETFs

ProShares VIX Short-Term Futures ETF (VIXY - Free Report)

It seeks to profit from increases in the expected volatility of the S&P 500 as measured by the prices of VIX futures contracts. The ETF focuses on the S&P 500 VIX Short-Term Futures Index, measuring the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration. It has amassed $249.6 million in AUM and charges 85 bps in fees per year. The fund trades in average daily volume of around 2.5 million shares.

VelocityShares Daily Long VIX Short-Term ETN (VIIX - Free Report)

This ETN is unpopular and illiquid with AUM of $26.3 million and average daily volume of 110,000 shares. It seeks to deliver the daily performance of the S&P 500 VIX Short-Term Futures Index, charging 89 bps in annual fees.

Leveraged Volatility ETFs

Investors seeking huge gains in a very short time frame could consider leveraged volatility ETFs. Currently, there are two options available under this category:

ProShares Ultra VIX Short-Term Futures ETF (UVXY - Free Report)

This fund offers exposure to one and one-half times (1.5x) the daily performance of the S&P 500 VIX Short-Term Futures Index. It has accumulated $520.4 million and average daily volume of 11.5 million shares. UVXY charges 95 bps in annual fees.

VelocityShares Daily 2x VIX Short-Term ETN (TVIX - Free Report)

This note offers two times exposure to the S&P 500 VIX Short-Term Futures Index. TVIX is popular with average daily volume of around 26 million shares and AUM of about $1.2 billion. Expense ratio is much higher at 1.65%.

Bottom Line

Investors should note that these products are suitable only for short-term traders. This is because most of the time, the VIX futures market trades in a condition known as contango, a situation wherein the near-term futures are cheaper than the long-term futures contracts. Since volatility ETFs and ETNs like VXX must roll from month to month in order to avoid delivery, the situation of contango can eat away returns over long periods.

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