Volatility is an essential but dangerous component of investing. On the one hand, the ability of a security’s price to fluctuate back and forth around the mean provides investors with opportunities to profit using strategic buys or sells of that security. In a slightly different way, assets that investors widely consider “volatile” tend to attract investors who are more willing to take risks; In this sense, volatility is an important way for an investor to evaluate the suitability of a particular asset given its ability to bear risk.
However, volatility is also very complex and difficult to evaluate. An investor who is able to consistently and accurately understand the effects of volatility may enjoy enormous advantages over competitors, but of course this is too good to be true. So, how can volatility work for a retail investor in a way that reduces risk?
Investors often turn to the Chicago Options Exchange’s CBOE Volatility Index (VIX) to measure volatility – the VIX uses the price of S&P 500 options to evaluate the next 30 days of the implied volatility of the S&P 500. Because options prices tend to rise when investors are concerned about something In the market, the VIX often rises when the S&P 500 — and in most cases, the broader index — approaches. Market – falling, and vice versa. Because of this trend, investors often refer to the VIX as the fear index.
Investing in the VIX index using an exchange-traded fund (ETF) is a popular way to capitalize on changes in widespread investor fears and anxiety about the market. Heading into 2025, there are already many reasons why investors might be concerned about market well-being, from domestic and international political issues to ongoing global conflict and more. Here are three exchange-traded volatility products that trail the VIX that sophisticated investors with a solid understanding of volatility may want to consider at this moment.
iPath Series B S&P 500 VIX Short-Term Futures ETN
iPath Series B S&P 500 VIX Short-Term Futures ETN Today
iPath Series B S&P 500 VIX Short-Term Futures ETN
- Assets under management
- $278.30 million
One of the primary means investors have to access the VIX is the iPath Series B S&P 500 VIX Short-Term Futures ETN. Bat: VXXan exchange-traded note for first- and second-month VIX futures. VXX has a daily rolling long position, which means it is not suitable for buy and hold trading. Its focus on short-term VIX futures links it to the index, but still potentially deviates from investing in the VIX directly (although the latter is not possible for investors, but is only hypothetical).
What this means for investors is that the VXX can be a powerful tool for taking advantage of short-term bouts of anxiety among investors – when anxiety increases and stocks fall, the VIX (and therefore the VXX) should rise.
Simplify Volatility Premium ETF
Simplify today’s premium volatility ETF
Simplify Volatility Premium ETF
As of 01/17/2025 at 04:10 PM ET
- 52 week range
- $19.41
▼
$23.14
- Dividend yield
- 18.55%
- Assets under management
- $1.19 billion
While VXX takes a daily long position on the VIX, the Simplify Volatility Premium ETF NYSEARCA:SVOL He adopts a short position, which means that he rises along with the market when the VIX falls. SVOL is designed as a way to generate income in a low-yield environment, and aims to achieve exposure of -0.2x to -0.3x to short-term VIX futures.
SVOL is also best suited for short-term play and can be a good way for investors to benefit from easing investor anxiety in local moments of market rally. The small inverse leverage ratio is intended to smooth out extreme fluctuations in volatility in the VIX. Although SVOL remains a complex investment for savvy investors who focus on volatility, these measures help reduce risk where possible.
ProShares Ultra VIX Short-Term Futures ETF
ProShares Ultra VIX Short-Term Futures ETF Today
ProShares Ultra VIX Short-Term Futures ETF
As of 01/17/2025
- Assets under management
- $249.61 million
On the other end of the spectrum from SVOL is the ProShares Ultra VIX Short-Term Futures Fund Bat: UVXY Because of its leveraged exposure to short-term VIX futures contracts. It’s worth noting that a leveraged VIX ETF like this introduces another layer of amplifying broader market volatility – it’s common for the VIX to actually move further than the S&P 500 when there’s price movement in the latter.
This is all to say that, like both products above, UVXY is not particularly equipped for buy-and-hold trading. It is a powerful tactical tool to profit greatly from short spikes in investor anxiety that accompany – or sometimes precede – declines in the S&P 500.
With all the potential for the market to turn in 2025, investors would be wise to consider how to safely and effectively play to the changes in investor anxiety. Volatility funds and products like these can provide exceptional returns for careful and knowledgeable investors.
Before you consider short-term iPath Series B S&P 500 VIX ETN futures, you’ll need to hear this.
MarketBeat tracks the highest-rated and best-performing research analysts on Wall Street and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are whispering to its clients to buy now before the broader market catches up… The iPath Series B S&P 500 VIX Short-Term Futures ETN was not on the list.
While the iPath Series B S&P 500 VIX Short-Term Futures ETN currently has a “Hold” rating among analysts, highly rated analysts believe these 5 stocks are better buys.
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