Market Volatility Is On The Horizon - How Can Traders Use This To Their Advantage? Compare These Two Volatility ETFs

Market volatility, simply put, is how much and how quickly prices change. The larger and quicker, the more volatile the market.

Market volatility is measured by finding the standard deviation from mean prices over a given period of time, or more commonly, the expected deviation in the future. And this, it turns out, is a great way to gauge the sentiment of investors in a market.

Most investors will be familiar with the CBOE Volatility Index VIX, or VIX. This tracks the expected volatility of the S&P 500 and is often called the “fear” index because as VIX rises, markets fall, and vice versa. At least, this is the perception. There is by no means a one-to-one relationship, but they are certainly linked.

The largest spikes in VIX, by a mile, came at the height of the 2008 financial crisis and again during the spring of 2020 as the world shut down in response to the Covid-19 Pandemic. 

Smart investors then, can use market volatility not just as a guide, but as a hedge. Certain ETFs allow investors access to monetizing volatility. Therefore if the value of the rest of a portfolio falls, that damage can be offset by the rise in volatility.

Not all ETFs are created equal, however. It is important for investors to understand what they are investing in and when presented with multiple options, to choose carefully.

Let’s look at two options head to head: 

ProShares VIX Short-Term Futures ETF VIXY vs. ConvexityShares 1x SPIKES Futures ETF SPKX

Underlying Index

This is perhaps the most significant distinction between these two options. VIXY is tied to an index of VIX futures while SPKX is tied to MIAX’s SPIKES SPIKE futures. SPIKES offers several advantages over VIX. The index uses live pricing data (vs an average calculation) and updates every 100 milliseconds (vs every 15 seconds). It also employs a proprietary mechanism it calls price dragging that reduces anomalous spikes in the index.

Cost

VIXY has an expense ratio of 1.05%, while SPKX has an expense ratio of 0.65%.

AUM

VIXY is much larger with $211.4 Million in AUM, while SPKX has just over $1 Million.

YTD Performance

It has been a good year for US equities in general, and thus, not a great year for volatility ETFs. VIXY is down 54.69% and SPKX is down 53.59%.