Volatility Puts VIX ETNs Back in Favor

August 12th at 12:00pm by Tom Lydon

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.]

For more stories about VIX, visit our VIX category. There are three ETNs that track the VIX’s movements:

  • 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.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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