Volatility has crumpled the global stock market this week dampening the appeal for riskier assets. This is especially true as stocks around the world logged in their longest losing streak in eight months on Nov 15. The uncertainty in tax reform, as well as a flattening yield curve, is weighing heavily on the stocks.

Notably, the U.S. Treasury yield curve flattened to a 10-year low, giving warning signs for the broader equity market. The sell-off in the bonds could be a precursor to a larger pullback in the stock market.

The worries deepened with falling oil price that has again led to rough trading in the energy sector. Oil prices have fallen by 4% since hitting the 2015 highs last week following the International Energy Agency’s forecast of weak demand growth, increase in crude inventories and signs that Russia may not be ready to extend the OPEC production cut deal. Additionally, renewed sell-off in other commodities like industrial metals amid concerns over slowing Chinese growth added to the woes.

If these weren’t enough, the U.S. stock market is currently in the midst of the second-largest bull run and one of the most expensive, citing fears about ageing and the stretched valuations.

Given this, the volatility level represented by the CBOE Volatility Index (VIX) jumped 13.3% on Nov 15, and touched its highest level since mid-August. This suggests that market fears have started to set in. This fear gauge measures investors’ perception of the market’s risks and tends to rise during a downturn or when investor panic starts to set in. It is constructed using implied volatilities of the S&P 500 index options, taking both calls and puts into account.

As risks are rising, investors could definitely benefit from this trend. While investors can’t directly buy up 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 continue to move higher as long as tax reform and sliding oil prices plague the global markets:

Simple Volatility ETFs

iPath S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) is a popular option providing exposure to volatility that sees a truly impressive average volume of about 25 million shares a day. The note has amassed $1 billion 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. VXX gained 9% over the past week.

Two more products, ProShares VIX Short-Term Futures ETF (VIXY - Free Report)and VelocityShares Daily Long VIX Short-Term ETN (VIIX - Free Report) , also track the same index. VIXY has $171 million in AUM and sees good average daily volume of around 1.2 million shares while VIIX is the unpopular of the two with just $13 million in AUM and volume of more than 132,000 shares per day. While VIXY charges 85 bps in annual fee, VIIX is just 4 bps costlier. Both products gained nearly 9% over the past week.

Leveraged Volatility ETFs

Investors seeking huge gains in a very short time frame could consider leveraged volatility ETFs. Currently, there are two options available in this category, ProShares Ultra VIX Short-Term Futures ETF (UVXY - Free Report) and VelocityShares Daily 2x VIX Short-Term ETN (TVIX - Free Report). Both products provide two times (2x or 200%) exposure to the daily performance of the S&P 500 VIX Short-Term Futures Index and gained nearly 18% over the past week.

Out of the two, UVXY is more popular with AUM of $434.8 million and average daily volume of about 21.2 million shares. Further, it charges a lower fee of 95 bps compared with 1.65% for TVIX.

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 where near-term futures are cheaper than 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.

However, though ‘volatility of volatility’ is pretty high, this seems a good time to remain invested in this market.