Volatility ETFs stood out over the last week amid the big market sell-off. Volatility spiked considerably as a wave of selling spread from Japan. The unwinding of the yen carry trade sparked a broad sell-off, but other potential issues linger. For example, concerns abound surrounding AI and its ability to deliver on revenues. Those and other issues may see investors look to short-term volatility ETFs to help their portfolios.
So, what kind of short-term volatility ETFs are available? Per ETF Database, short-term volatility ETFs offer investors the opportunity to invest in short-term futures contracts on the Cboe Volatility Index. Via those ETFs, investors can get exposure to volatility without having to use options.
The Simplify Volatility Premium ETF (SVOL) offers a notable example. It charges a 50 basis point (bps) fee for its active approach. The short-term volatility ETF looks to provide income via short exposure to S&P 500 VIX futures that reset daily. The strategy also employs an option overlay to limit downside exposure to the VIX. By buying and selling futures contracts, call options, and put options on VIX futures, it looks to meet its income goals. SVOL hit its three-year ETF milestone earlier this year.
The ProShares Short VIX Short-Term Futures ETF (SVXY) presents another option. Charging 95 bps, it tracks the S&P 500 VIX Short-Term Futures Index (-100%). The strategy’s inverse exposure to its index of VIX futures contracts would generally, then, see it move in the same direction as equities. So, when the market is in contango, i.e. the price of a futures contract is higher than the spot price, it could benefit.
Finally, the iPath Series B S&P 500 Short-Term Futures ETN (VXX) provides one further option. It charges an 89 bps fee. The note tracks the S&P 500 VIX Short-Term Futures Index Total Return Index. The strategy presents an option for times when the market may be about to dip or struggle.
Short-term volatility ETFs come in a variety of flavors. What they all share, however, is a focus on moments of market turmoil. With an election, potential rate cuts, and a possible wobble for AI looming, they could offer some helpful options.
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