Nevertheless, VIX funds have helped investors ride out short-term spikes in volatility as equities plunge on any geopolitical flare-ups or poor economic data.
“If you think volatility is cheap, you may buy it as portfolio insurance, a way in which to guard against potential losses,” Chris Blum, global head of equities for JPMorgan Private Bank, said in the article. “It’s like many types of insurance policies, like life insurance or otherwise, you hope you don’t have to collect on it.”
The iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX) plunged 9.8% Thursday on reports that Congress had a working proposal to the debt ceiling drama. VXX is down 53.6% year-to-date, revealing the growing market complacency as the equities market rallied to all-time highs this year.
For more information on the CBOE Volatility Index, visit our VIX category.