Trading in futures contracts based on the CBOE Volatility Index, or VIX, is near record levels along with exchange traded products linked to Wall Street’s “fear gauge.”
From a fund flows standpoint, Volatility based products were once again in play, as iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) took in an impresive $600 million plus in new assets last week, which is approximately 30% of the total assets outstanding in the fund. [Trading in Volatility ETF Ramps Up]
This comes just a week or so after issuer VelocityShares halted creations of its popular VelocityShares Daily 2X VIX Short Term ETN (NYSEArca: TVIX). [Volatility ETF Trading Volume Jumps After TVIX Suspends Issuance]
All in all, we have noted a huge pick up in trading activity across the spectrum of “Vol” products, including the aforementioned funds as well as lesser known products such as ProShares Ultra VIX Short Term Futures ETF (NYSEArca: UVXY). The funds track VIX futures.
With the VIX itself well off of recent highs near the $22 level and closing on Friday at $17.29, it seems feasible that institutional players are establishing protection against the possibility of a volatility spike, but it is hard to say that it is an outright bearish view against the market itself.
In fact, an interesting article surfaced in this weekend’s Wall Street Journal titled “A Contrarian View on Fear” where the belief that the surge in recent activity in VIX futures and related Volatility ETFs and ETNs has been driven by bigger risk appetites for individual equities and as some portfolio managers continue to get comfortable “longer” equities into the 2012 rally, they are also establishing volatility hedges along the way.
On that note, SPDR S&P 500 (NYSEArca: SPY) was the leader in net creation activity last week, reeling in nearly $3 billion in new assets. Interestingly, SPDR Gold Shares (NYSEArca: GLD), despite an absolute drubbing on Wednesday of last week, saw net creations as well, in the neighborhood of about $600 million which shows the presence of “bargain hunters” potentially adding to positions or establishing new entry points as the 50 and 200 day moving averages in GLD itself are nearly in line with each other at the moment.