ETF Spotlight on iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX), part of an ongoing series.

Assets: $1.1 billion.

Objective: The exchange traded note tries to provide access to U.S. stock market volatility through CBOE Volatility Index futures.

Holdings: The fund divides roughly half of its holdings between the first and second near-month VIX futures contracts.

What You Should Know:

  • VXX has an expense ratio of 0.89%.
  • VXX tracks a portfolio of near-term futures on the VIX and maintains an average duration of one month.
  • The VIX is Wall Street’s fear index and spikes when markets are in free-fall.
  • “Many institutions use these futures to guard against adverse market movements, so the prices of longer-dated contracts include sizable insurance premiums that disappear as they move toward expiration,” as stated by Morningstar analysts. “This produces a large negative roll yield, so the ETN will lose money during periods of market stability and constant volatility, when investors have some level of certainty about market climate.”
  • The fund is an ETN. ETNs are debt instruments backed by the full faith and credit of the issuer. They follow an underlying index or product and anyone can buy them. Since they are debt instruments, if the issuer goes bankrupt, you become another creditor and you’ll have to get in line. [ETNs: Everything You Want to Know.]
  • The ETN is the largest VIX-themed exchange traded product.
  • VXX has posted dreadful long-term performance and has been hurt by “contango” in VIX futures. It was launched in early 2009 just as U.S. stocks were bottoming after the credit crisis and gearing up for their historic bull run. Still, the ETN has a market cap of more than $1 billion.

The Latest News:

  • “The VIX briefly fell through the 16 level,” according to a Street One Financial note, “and this corresponds with some broad based buying of protective put options across major index products… It seems that amidst the recent rally and subsequent decline in the VIX, institutional investors are using this opportunity to protect recent gains by accumulating downside puts.”
  • The VIX closed below 16 on Friday as U.S. stocks rose every day last week on hopes the Greek austerity vote will moderate European debt fears. Its 52-week low of 14.27 was set in April. The VIX is currently floating around its long-term average. [VIX Pullback Triggers Redemption of Barclays ETN.]

For past stories in this series, visit our ETF Spotlight category.

iPath S&P 500 VIX Short-Term Futures ETN

Chart source:

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.