The CBOE Volatility Index and VIX-related exchange traded products surged Friday on speculation that the Federal Reserve may begin hiking interest rates later this month.
After languishing in a complacent market, the iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) jumped 10.3% and ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) increased 10.5% on Friday. More aggressive traders have turned to the leveraged ProShares Ultra VIX Short-Term Futures (NYSEArca: UVXY), which gained 20.1%. Potential traders should be aware that these VIX exchange traded products track the futures market and not the spot price of the VIX.
SEE MORE: A Closer Look at VIX ETFs
Meanwhile, the VIX surged 27.1% to 15.9 – the VIX has historically stuck around the 15 to 20 range and has been hovering near its lowest point this year as the equities market stuck in range bound trading near record highs.
“When the market is near its top – as this market has been – any piece of bad news will results in a selloff,” Thomas Siomades, head of Hartford Funds Investment Consulting Group, told Market Watch.[related_stories]
The VIX rose as much as 18.5% earlier in the day, the largest intra-day gain since the 52.1% climb after the Brexit vote in late June, reports Adam Samson for the Financial Times.
The VIX, or so-called fear index, 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 volatility index advanced as the S&P 500 declined 1.7% Friday, heading toward its first close up or down by more than 1% since July 8.
The equity markets dove after Federal Reserve Bank of Boston President Eric Rosenberg said that a “reasonable case” could be made to begin gradually normalizing interest rates to obviate a potentially overheating U.S. economic.
Market observers will be closely watching Fed Governor Lael Brainard’s speech on Monday to gather further clues on the direction of the central bank.
For more information on the CBOE Volatility Index, visit our VIX category.
iPath S&P 500 VIX Short Term Futures ETN