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Sometimes referred to as the "fear index," the Chicago Board Options Exchange Volatility Index (VIX) was created in 1993 to track stock market volatility. Since then, the VIX has become the leading gauge of investor sentiment and short-term market volatility.
The VIX reflects the market's expectation of 30-day S&P 500 volatility based on the prices of options on the S&P 500 index. The price of VIX often moves in the opposite direction of the S&P 500, trading higher when fear in the market rises, as shown in the following monthly chart.
This monthly chart shows that SPY (pink) and VIX (blue) often move in opposite directions. Chart created with Yahoo Finance.
VIX ETFs can be used to hedge investments in the market or to speculate on potential sell-offs. The CBOE Futures Exchange is the exclusive home for trading VIX futures, and CBOE is the exclusive home for trading VIX options. VIX ETFs are available for trading through a wide variety of brokers.
iPath S&P 500 VIX Short-Term Futures ETN – VXX
S&P 500 VIX Short-Term Futures Exchange Traded Note (VXX) is the largest and most popular volatility ETN. VXX tracks the implied volatility of the S&P 500 by taking a daily rolling long position in VIX futures. Rather than a long-term holding, VXX is widely seen as a tool to hedge against risk in short term investments or as a way to speculate on short term volatility.
Launched in 2009 and managed by Barclays iPath, VXX has assets under management of $999.40 million as of Feb. 23, 2018, an average trading volume of 27.4 million shares and an expense ratio of 0.89%.
ProShares VIX Short-Term Futures ETF – VIXY
ProShares VIX Short-Term Futures ETF (VIXY) seeks investment results that track the performance of the S&P 500 VIX Short-Term Futures Index. The Index measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration. Note that the fund doesn’t track the CBOE Volatility Index (VIX), and, according to the ProShares website “can be expected to perform very differently from the VIX.”
Introduced in 2011, VIXY has total assets of $97.61 million as of Feb. 23, 2018, an average daily trading volume of 1.3 million and an expense ratio of 0.87%.
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