Volatility Drops Sharply: How Popular VIX ETFs Are Responding

On Friday afternoon, the CBOE Volatility Index (VIX) was down a steep 11%, signaling a cooling of market fear. But for traders who thrive on volatility, the real action lies in the ETFs that track and take advantage of these wild swings.

VIX-related ETFs are popular tools for hedging against market turbulence or speculating on changes in volatility. But here's the catch: these funds don't track the VIX itself. Instead, they track VIX futures, which can sometimes lead to performance discrepancies over time. Let's break down the key players in the VIX ETF space and what today's market movement might mean for them.

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The Popular Picks

1. ProShares VIX Short-Term Futures ETF VIXY
   • Tracks the S&P 500 VIX Short-Term Futures Index.
   • Offers exposure to VIX futures contracts with short-term expirations.
   • Typically used as a short-term hedge during market uncertainty.
2. ProShares VIX Mid-Term Futures ETF VIXM
   • Tracks the S&P 500 VIX Mid-Term Futures Index.
   • Provides exposure to VIX futures contracts with mid-term expirations (typically 4-7 months).
   • Less sensitive to daily VIX movements compared to short-term options.
3. iPath Series B S&P 500 VIX Short-Term Futures ETN VXX
   • An exchange-traded note (ETN) that mirrors short-term VIX futures performance.
   • Often favored by traders for quick volatility plays.
4. iPath Series B S&P 500 VIX Mid-Term Futures ETN VXZ
   • Similar to VXX but focuses on mid-term volatility futures.
   • Less reactive to daily VIX fluctuations but useful for longer-term positioning.

Going Against the Grain

5. VS TR -1x Short VIX Futures ETF SVIX – The Volatility Inverse ETF
   • Designed for traders looking to profit from declining volatility.
   • Moves inversely to the VIX, meaning it's likely enjoying today's drop.
6. ProShares Trust Ultra VIX Short Term Futures ETF UVXY
   • A leveraged ETF offering 1.5x exposure to short-term VIX futures performance.
   • High risk, high reward—best suited for aggressive traders with a short-term focus.

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What Today's Drop Means For VIX ETFs

With the VIX sinking, inverse volatility ETFs like SVIX are posting gains (up 6% as of writing), while long-volatility plays like VXX, VIXY, and UVXY are seeing declines of 6.22%, 6.41%, and 9.10%, respectively. However, it's important to remember that these funds are not designed for long-term holding due to the effects of futures contract roll costs. Short-term traders, though, may find opportunities to cash in on the shifting volatility scene.

While today's VIX slump suggests a calmer market, seasoned traders know that volatility is never truly gone. It's just waiting for the next catalyst. And when that happens, these ETFs will be back in the spotlight.

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