Volatility ETFs Surge on China Woes | ETF Trends

The CBOE Volatility Index and VIX-related exchange traded products spiked Thursday after a quick plunge in Chinese markets triggered a sell-off in the U.S. and inflamed investor anxiety.

On Thursday, the iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) rose 11.4%, ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) gained 10.9%.

Additionally, for the more aggressive traders, the leveraged ProShares Ultra VIX Short-Term Futures (NYSEArca: UVXY) and VelocityShares Daily 2x VIX Short Term ETN (NYSEArca: TVIX), which both try to reflect two times or 200% the daily performance of the S&P VIX Short-Term Futures Index, jumped 22.3% and 22.6%, respectively, on Thursday.

Meanwhile, the CBOE Volatility Index, or so-called VIX, was up 22.5% to 25.2, trading hear its highest level since mid-December – the volatility index has historically hovered within the 15 to 20 range but surged after the poor start to the new year. The VIX shows the market’s expected 30-day volatility. Consequently, the index is widely used as a measure of market risk and is often refereed to as the so-called fear gauge.

A number of factors are dragging on U.S. equities, with the quick plunge in Chinese markets stoking global uncertainty at the top of the list, followed by the continued weakness in the oil market and potentially weak earnings outlook.

“There is a wall of worry under full construction brought on by China, fall in oil prices and uncertainty regarding quarterly earnings,” Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, told Reuters. “There is concern regarding China’s ability to manage its economy and while the Fed removed one uncertainty when it raised rates last year, it introduced another with regard to the pace of hikes.”

The sell-off in Chinese markets is attributed to Beijing’s unexpected downward adjustment to its yuan currency, which sent mainland stocks down more than 7% and triggered market circuit breakers after only 30 minutes of trading – the trading halt on Thursday was the second this week.