volatility There is a necessary but dangerous part of investing. On the one hand, the ability for a security’s price to move back and forth around a mean provides investors with opportunities to profit by using strategic buying or selling of that security. Taken slightly differently, investors are more willing to take on risk in assets that investors consider to be broadly “volatile”; In this sense, volatility is an important way for an investor to assess the suitability of a particular asset given his risk tolerance.
However, volatility is also notoriously complex and difficult to assess. An investor able to consistently and accurately understand the effects of volatility can have a huge advantage over rivals, but of course, it’s too good to be true. So, how can volatility work for the retail investor in a way that minimizes risk?
Investors often turn to The Chicago Board Options Exchange’s CBOE Volatility Index (VIX) To measure volatility — The VIX uses the price of S&P 500 options to assess the volatility of the S&P 500 over the next 30 days. Because options prices rise when investors are worried about something in the market, the VIX often rises when the S&P 500—and, in most cases, Broad market– falls, and vice versa. Because of this trend, investors often refer to the VIX as a fear index.
Investing in the VIX using a Exchange Traded Fund (ETF) A popular way to capitalize on changes in widespread investor fear and anxiety about the market. Heading into 2025, there are actually many reasons that investors may be concerned about the well-being of the market, from domestic and international political issues to ongoing global conflicts and more. Below are three volatility exchange-traded products running on the VIX that sophisticated investors with a solid understanding of volatility may want to consider for the time being.
iPath Series B S&P 500 VIX Short-Term Futures ETN
iPath Series B S&P 500 VIX Short-Term Futures ETN Today
- Property under management
- $305.91 million
One of the primary means for investors to access the VIX iPath Series B S&P 500 VIX Short-Term Futures ETN BATS: VXXAn exchange-traded note for first- and second-month VIX futures. VXX has a daily rolling long position, meaning it is not suitable for trading. Its focus on short-term VIX futures ties it to the index, but it is still likely to deviate from direct investment in the VIX (although the latter is not feasible for investors, only hypothetically).
What this means for investors is that the VXX can be a powerful tool for short-term bursts of anxiety among investors – when anxiety rises and stocks go down, the VIX (and the VXX, by extension) should rise.
Simplify volatility premium ETFs
Simplify Volatility Premium ETFs today
01/16/2025 to 04:10 PM Eastern
- 52-week range
- $19.41
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$23.14
- Dividend yield
- 18.67%
- Property under management
- $1.19 billion
While VXX takes a daily long position on VIX, Simplify volatility premium ETFs NYSEARCA: SVOL Adopts a short position, meaning that when the VIX falls it rises along with the market. SVOL was conceived as a means of generating income in a low-yield setting, and aims to achieve -0.2x to -0.3x exposure to VIX short-term futures.
SVOL is also best as a short-term play and can be a great way for investors to take advantage of the easing of investor anxiety in localized moments of market growth. Its small inverse leverage ratio is intended to reduce extreme swings in volatility in the VIX. While SVOL remains a complex investment for savvy volatility-focused investors, these measures help minimize risk wherever possible.
ProShares Ultra VIX Short-Term Futures ETF
ProShares Ultra VIX Short-Term Futures ETF Today
Until 01/16/2025
- Property under management
- $249.61 million
At the other end of the spectrum from SVOL ProShares Ultra VIX Short-Term Futures ETF BATS: UVXY Because of its leverage exposure to short-term VIX futures. In particular, a leveraged VIX ETF like this offers another layer of exposure to market swings more broadly—it’s common for the VIX to already move away from the S&P 500 when subsequent price movements occur. thing is
That said, like both of the above products, UVXY is not particularly geared towards buy-sell trading. This is a powerful strategic tool for profiting significantly from brief spikes in the S&P 500 that coincide with—or sometimes precede—decline in investor anxiety.
With all the potential for market changes in 2025, investors may be wise to consider how to safely and effectively navigate changes in investor concern. Volatility funds and similar products can offer exceptional returns to cautious and knowledgeable investors.
Before you consider the iPath Series B S&P 500 VIX Short-Term Futures ETN, you may want to hear this.
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