ETF Spotlight on iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX) and iPath S&P 500 VIX Mid-Term Futures ETN (NYSEArca: VXZ). Part of a weekly series.

Assets: A combined $2.4 billion; VXX has $1.6 billion; VXZ has $839.8 million

Objective: The funds seek to replicate the S&P 500 VIX Short-Term Futures Total Return and the S&P 500 VIX Mid-Term Futures Total Return indexes.

Holdings: Both exchange traded notes (ETNs) track a basket of volatility futures. The funds are linked to investor sentiment, but they don’t track the VIX on a day-to-day basis.

What You Should Know

  • VIX futures “bet” on a snapshot of where the VIX will close on the day they expire. That expiration is 30 days before the next month’s SPX expiration, so Feb VIXes expire on Feb. 17th, March VIX on March 17th, and so on. [How to Play the VIX.]
  • The two ETNs correlate well to the VIX: iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) has a 0.87 correlation, while iPath S&P 500 VIX Mid-Term Futures ETN (NYSEArca: VXZ) has a 0.83 correlation. They also have a high negative correlation to the S&P 500.
  • As ETNs, these funds are debt backed by the full faith and credit of the issuer.
  • Any tracking error in the ETN is paid for by the issuer; there’s no risk of tracking error on the part of the investor. [ETF and ETN Differences.]
  • Both funds have a 0.89% expense ratio.

The Latest News

  • The VIX is frequently known as the market’s “fear gauge,” tracking the prices investors are willing to fork over for options on the S&P 500 to protect themselves against further market losses.
  • The market’s see-saws over the last couple of days have put the VIX back in the spotlight.
  • The VIX climbed 14% in early trading on Wednesday, thanks to pervasive concerns that Greece and other debt-laden eurozone countries could default on their massive debt.
  • The VIX tends to have an inverse relationship with the broader stock market – when the VIX is rising, stocks are usually falling.

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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.