Sophisticated investors want sophisticated exchange traded funds (ETFs) that cater to their investment whims. But, volatility-related exchange traded notes (ETNs) that need a more acquired taste has come under some scrutiny as to the way the funds track the VIX.

First off, the volatility ETNs use VIX futures contracts, writes Clare White for Optionetics. [VIX ETNs: Calm Before the Storm?]

The iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX) holds front month and next month futures contracts. VXX has to roll out the contracts each month as the underlying securities mature. The front month contract percent weight  diminishes to zero as the percent weight of the next month rises to 100%.

The iPath S&P 500 VIX Mid-Term Futures ETN (NYSEArca: VXZ) holds futures contracts from months four to seven and also decreases the percent weight in the closest month while the expiration approaches for the front month contracts.

As of October 26, VXX held around 73% Nov. VIX Futures and 27% Dec. VIX futures. The logical way to compare changes in the VIX to VXX would be to calculate the percent change in the two futures holdings and add together. However, on the 27th, VIX rose by 2.42% while VXX increased 1.47%. Similarly, VXZ increased 0.09%, with a calculated component change of 0%.

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