Exchange traded funds that track the movement of CBOE Volatility Index futures reflect the growing complacency within the equities market as investors feel more confident in dipping back into riskier assets.
In contrast, the VelocityShares Daily Inverse VIX Short-term ETN (NYSEArca: XIV) has gained 64.9% and the ProShares Short VIX Short-Term Futures ETF (NYSEArca: SVXY) returned 63.8% over the same period. They’re inverse ETFs that move in the opposite direction of VIX futures.
Meanwhile, the S&P 500 has increased 8.2% in the last three months as monetary easing measures sent the markets back to a “risk-on” rally.
The VIX now hovers around 14.3, which is below its historical mean and median and near a five-year low – the index traded at a five-year low of 13.45 on Aug. 17.
The VIX is a widely viewed gauge of market risk or “fear” – the index tracks implied future volatility. With its current low readings, the indicator is pointing to greater complacency in the markets and less fear of rising volatility in the near term.
Nevertheless, investors remain cautious with the current rally. Options volume on VIX futures hit a daily record on Tuesday, with over 1.2 million contracts swapping hands, the highest since Aug. 2011 when the VIX was at 48, reports Doris Frankel for Reuters. [VIX ETF Sees Nearly $1B Quarterly Inflow Despite 43% Drop]
“As volume in VIX options increases, it is a signal that more people are using the contracts as a hedge to their long equity exposure,” Ben Londergan, co-chief executive officer at Group One Trading in Chicago, said in the Reuters article.
For more information on market volatility, visit our volatility category.
Max Chen 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.