With the equities market rebounding from the sell-off earlier this year and pushing back toward their all-time highs, some more skeptical investors have increased bets on the CBOE Volatility Index, or VIX, and related exchange traded products to hedge against a market turn.
Investors funneled a record amount of cash into exchange traded funds that track the CBOE Volatility Index over the past month, the Wall Street Journal reports.
For instance, the iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) attracted $419.3 million in net inflows and ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) added $40.5 million in March, according to ETF.com.
Additionally, for the more aggressive traders, the leveraged ProShares Ultra VIX Short-Term Futures (NYSEArca: UVXY) saw $301.7 million in inflows and VelocityShares Daily 2x VIX Short Term ETN (NYSEArca: TVIX) attracted $303.9 million.
“Investors have invested a significant amount of money in double-levered VIX products in the last few days, as they’ve seen the VIX fall to levels they wouldn’t have thought to be on the horizon,” Rocky Fishman, an equity derivatives strategist at Deutsche Bank, told the WSJ.
Nick Cherney, head of exchange-traded products for Janus Capital Group, which owns VelocityShares, calculated that investors piled $3.5 billion into futures tracking the VIX will rise over the past month.
“You’re probably going to lose money if nothing happens, but you’re absolutely going to make money” if stocks decline sharply, Roy Larsen, president of Larsen Wealth Management, told clients after recently adding positions in VXX.
[related_stories]VIX products are attracting increased interest after the equities market rallied over 10% from their February lows. As some see the recent rebound grow long in the tooth, traders are beginning to position against the next downward turn.
The VIX is a widely observed indicator for investor sentiment in the stock market and measures the expected or implied volatility of large-cap stock options traded on the S&P 500 index. Exchange traded products that track VIX futures allow investors to profit during rising volatility or hedge against short-term turns.
The VIX, though, plunged 9.1% to 13.85 Wednesday after Federal Reserve Chair Janet Yellen reiterated the central bank’s dovish stance in light of ongoing volatility in the global economy.
Investors should keep in mind that the majority of VIX ETPs are designed to track CBOE Volatility Index futures contracts, not the VIX spot price. It’s a very important difference.
iPath S&P 500 VIX Short Term Futures ETN