The latest method to measure portfolio risk and get a feel for what’s going on in the stock market is with specific exchange traded funds (ETFs). The Chicago Board Options Exchange is launching volatility indexes, says John Spence of MarketWatch, based on the VIX, or CBOE Volatility Index.[VIX ETF And ETN Options for Volatile Markets.]
The “VIX,” or the market’s “fear gauge,” is on the rise again as stock markets take a dive on renewed global volatility, as Japan’s earthquake has rattled investors’ nerves and unrest in Libya is boiling. If uncertainty continues, equities could take a dive, making VIX ETF products a nice hedge for investors.[ETF Plays As Volatility Returns.]
The VIX measures the 30-day volatility of an index of large-cap stocks. In short, it’s a calculation based on how volatile investors believe the markets will be in the coming 30 days. The S&P 500 and the VIX have a negative correlation: when the VIX is rising, the S&P generally declines; when the VIX is declining, the S&P generally rises.
The CBOE Volatility Index is widening its VIX franchise to amplify into an ETF methodology, which will give investors a more targeted range of managing volatility across different asset classes. VIX fund products try to reflect futures products, not spot prices. [3 Ways To Cope in Fickle Markets.]
According to Spence, the CBOE introduced VIX benchmarks tied to options on six highly-traded ETFs:
- iShares MSCI Emerging Markets (NYSEArca: EEM)
- iShares FTSE China 25 Index (NYSEArca: FXI)
- iShares MSCI Brazil Index (NYSEArca: EWZ)
- Market Vectors Gold Miners (NYSEArca: GDX)
- iShares Silver Trust (NYSEArca: SLV)
- Energy Select Sector SPDR (NYSEArca: XLE)
Plans for benchmarks tied to the United States Oil Fund (NYSEArca: USO) and the SPDR Gold Shares (NYSEArca: GLD) are also in the pipeline, along with one for the euro.
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.