ETNs are debt instruments issued by financial institutions that promise to pay the return of an index, minus fees and taxes. They involve credit risks that aren’t associated with ETFs, shares of which represent a slice of a portfolio of assets.
VXX is down 55% year to date, according to Morningstar.
The Bloomberg story comes in the wake of last month’s plunge in VelocityShares Daily 2x VIX Short-Term ETN (NYSEArca: TVIX), a leveraged fund. [Banks Fined Over Leveraged and Inverse ETF Sales]
The SEC is probing the ETN’s swift decline that occurred when its premium collapsed. [SEC Reviewing TVIX Flop]
About 30 volatility products have been listed since January 2009, according to the article. Some traders use them to speculate on market declines or hedge. They’re designed as trading vehicles rather than buy-and-hold investments.
Inexperienced traders looking to make a “quick buck” are behind some of the demand for volatility notes, said Bill Luby, founder of the VIX and More blog, in the Bloomberg story. These investors “are probably not sophisticated enough to buy options,” Luby added.
iPath S&P 500 VIX Short-Term Futures ETN
