While the VIX exchange traded notes (ETNs) aren’t exactly screaming with fear as they did in the days after the “flash crash” on May 6, they’re sending a clear signal: traders think we’re in for a bumpy ride. In the last week, the ETNs are up between 6% and 7%.
The Chicago Board Options Exchange’s volatility index, or VIX, tracks prices that investors are willing to pay for options on the Standard & Poor’s 500 index. It is a key barometer of investor fear and confidence in the markets, and when it rises, it’s cause for concern. In the first half of trading yesterday, the index rose 17%, reports Brenden Conway for The Wall Street Journal. It was a wake-up call after weeks of calmer markets. [How the VIX Reflects Market Fear.]
Investopedia says the VIX shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward-looking and is calculated from both calls and puts. It is also used to measure market risk. [New Funds That Play Volatility.]
- iPath S&P 500 VIX Mid-Term Futures ETN (NYSEArca: VXZ)
- iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX)
- Barclays Inverse S&P 500 VIX Short-Term Futures ETN (NYSEArca: XXV)
Tisha Guerrero contributed to this article.