Inverse VIX ETFs Testing All-Time Highs
September 25th at 10:41am by Tom Lydon
With the Fed keeping its accommodative policy, exchange traded funds that short the CBOE Volatility Index, or “VIX,” have surged alongside the rally in equities. However, another round of debt ceiling talks could throw markets into turmoil.
The VelocityShares Daily Inverse VIX Short-Term ETN (NYSEArca: XIV) increased 70.0% year-to-date, while the S&P 500 index gained 21.2%. The inverse VIX fund is showing a double top resistance level after the S&P 500 hit a new all-time high. [Indexology: If It Ain’t Broke, Don’t VIX It]
The VIX tracks market volatility, or “fear,” and typically rises when the S&P 500 falters. A bet against the VIX, such as a short or inverse VIX fund, is similar to a play on equities.
The VIX is currently trading around 14.1 – the index has an historic average of around 20. [VIX ETFs Falter as Syria Crisis Abates]
The relatively low VIX reading and outperformance in inverse VIX-related funds suggest that there is a good amount of complacency within the market.
We are heading into the October 1 deadline for Congress to pass a resolution to the current debt ceiling. However, many anticipate that Washington will drag its feet and come up with a resolution at the twelfth hour.
“We’re going to tread water until Washington figures out what to do,” Brian Battle, vice president of trading at Performance Trust Capital Partners, said in a CNBC report. “They’ll likely wait until the last minute and the political solution seems to be to kick the can down the road.”
Other inverse VIX-related funds include the ProShares Short VIX Short-Term Futures ETF (NYSEArca: SVXY), VelocityShares Daily Inverse VIX Medium-Term ETN (NYSEArca: ZIV), iPath Inverse S&P 500 VIX Short-Term Futures ETN (NYSEArca: XXV) and iPath Inverse S&P 500 VIX Short-Term Futures ETN (NYSEArca: IVOP).
VelocityShares Daily Inverse VIX Short-Term ETN
For more information on the CBOE Volatility Index, visit our VIX 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.