Anti-volatility ETFs reach new high

Anti-volatility ETFs reach new high

Anti-volatility ETFs reach new high Lack of volatility continues to worry traders in the stock market, but it has helped one niche of ETFs reach a significant milestone.

This year, prices have doubled for exchange-traded products that short futures on the CBOE Volatility Index, or VIX, according to the Wall Street Journal.

This was made possible by stubbornly low levels of volatility. As of Monday, the end-of-day level of the VIX had been below 10 for a record eight sessions. On that same day, the VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV) and the ProShares Short VIX Short-Term Futures ETF (SVXY) continued a streak that’s produced year-to-date gains north of 100%.

The VIX — known as the “fear gauge” due to its tendency to soar when stocks freefall, and vice versa — estimates demand for portfolio insurance over the next 30 days based on S&P 500 options prices.

VIX ETFs are linked to futures contracts on the fear gauge; typically, long-dated futures contracts are costlier than shorter-dated ones. That’s a problem for long-VIX ETFs, which have to deal with the costs of rolling a month’s contract to the next.

According to the Journal, the iPath S&P 500 VIX Short-Term Futures (VXX), which must constantly buy higher-priced long-dated futures and sell lower-priced short-dated ones, has lost nearly 60% in value this year. From its 2009 inception, it has dropped more than 99%.

While experts have been forecasting a reversal for months, so far the calm in the markets has shown no signs of receding — which suggests only time will tell how much longer the short-VIX rally will run.


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