Is there a VIX ETF 3X?
VIX is the measure of volatility in the market and is based on current options prices on the S&P 500 over the 30 days forward. We see many questions about ETFs and specifically “Is There A Vix ETF 3X” so we delve into this question by understanding exactly what Volatility ETFs consists of and whether you should consider using them.
While volatility is seen as an asset class with trading opportunities, the underlying instrument is not stocks or bonds. Volatility is traded indirectly through futures and options. This applies for basket offerings on volatility as well. In other words, volatility ETFs purchase volatility instruments indirectly and therefore use futures and options contracts.
The VIX ETFs, like VIX itself use options and futures and can offer leveraging opportunities. These ETFs come with high risk frequently with no principal protection. ETFs are usually the favoured tool for self-directed investors who want to avoid the expensive management fees of mutual funds. Since volatility ETFs are riskier instruments than regular stock or bond ETFs, it is important to understand the several risks that come with them.
Leveraged Volatility ETFs
Regular Volatility ETFs are frequently benchmarked to indexes while leveraged volatility ETFs seek to outperform their benchmark .
Some volatility ETFs offer .5x performance on benchmark index, while others offer 1x , 1.5x , going up even to 2x. So a VIX ETF 1x would match the performance of VIX while VIX ETF 3x would indicate a fund that seeks to perform 3 times the underlying VIX index. While currently there is no VIX ETF 3x, past performance of some of volatility ETFs have come close to 3x.
iPath Series B S&P 500 VIX short term futures ETN (VXX) has a negative correlation to US and international stocks and tracks the S&P 500 Short Term Futures Index Total Return. Launched in 2018, it has $1.4 billion in assets under management and has an expense ratio of 0.89%.
The Ultra VIX Short Term Futures ETF(UVXY) aims at a 1.5x performance of the daily movement of the S&P 500 VIX Short Term Futures Index. It moves in the same direction as the VXX but at 1.5 times. The ProShares Ultra VIX Short-Term Futures (UVXY) ETF was launched in 2011. UVXY offers daily leveraged exposure to short-term VIX futures usually of one or two months maturity.
Inverse Volatility ETFs
While leveraged volatility ETFs offer a higher performance than the VIX or other underlying indexes, inverse ETFs are negatively correlated to the market indexes. Inverse volatility ETFs short future contracts on the VIX or the benchmark index and are usually meant for very short-term holding. They also offer high liquidity due to the short-term holding. These inverse volatility ETFs work well when there is little volatility.
The ProShares Short VIX Short-Term Futures (SVYX) offers an inverse exposure to the S&P 500 VIX Short-Term Futures Index. SVYX was launched in 2011 and has seen its performance go up higher than 2x in the past. Between its inception and 2013, its investors got 250% performance of the daily movement of the S&P 500 ETF SPY. Currently, the ETF has $518 million in assets under management and an expense ratio of 0.95 % . SVYX seeks to achieve a target performance of 0.5x the inverse of the S&P 500 VIX Short Term Futures Index, after deducting fund management fees.
However, the risks of inverse volatility ETFs should be recognized.
If suddenly, volatility spikes, inverse volatility ETFs will plunge. This was seen in Velocity Shares’ Daily Inverse VIX Short Term ETF (XIV) that was launched in 2010 with an expense ratio of 1.35%. It was an inverse ETF on VXX and so when VXX moved up, XIV moved down and vice versa. XIV sought a performance of 1x on the VXX and tracked the S&P500 VIX Short Term Futures Index Excess Returns (-100%). While the market was relatively calm, the ETF did well. However, that came crashing down in 2018 when volatility returned to the market.
The VelocityShares Daily 2x VIX Short Term ETN (TVIX) was launched in 2010 and offers a daily 2x performance on the VIX and seeks to capture volatility on the S&P 500. It usually trades on 1 month maturity notes and is meant for short term trades.
The Innovator Series Volatility ETFs
The Innovator S&P 500 Power Buffer ETF PJAN was launched in 2019 and has $291 million in assets under management. With an expense ratio of 0.79% it has returned 4.19% year to date. It has $290 million in assets under management and tracks the CBOE S&P 500 15% Power Protect January Series Index.
The Innovator S&P 500 Power Buffer ETF PAPR was launched in 2019 and has $189 million in assets under management. With an expense ratio of 0.79%, it has returned 3.13% year to date. It tracks the CBOE S&P 500 15% Power Protect April Series Index. It has $189 million in assets under management.
The Innovator S&P 500 Power Buffer ETF (POCT) has $188 million in assets under management and was launched in 2018 With an expense ratio of 0.79%, it has returned 6.27% year to date. It tracks the CBOE S&P 500 15% Power Protect October Series Index and has $188 million in assets under management
The Innovator S&P 500 Power ETF (BJAN) has $151 in assets under management. It has returned 5.61% year to date. Launched in 2019 It has an expense ratio of 0.79% and $152 million in assets under management. It tracks the CBOE S&P 500 Buffer Protect Index January.
The Innovator S&P 500 Power Buffer February Series ETF (PFEB) tracks the CBOE S&P 500 15% Power Protect February Series Index. Launched in February 2020 it has $118 million in assets under management.
The Innovator S&P 500 Ultra Buffer ETF (UJAN) tracks the CBOE S&P 500 30% (-5%–35%) Buffer Protect January Series Index. Launched in 2019, it has an expense ratio of 0.79% and $118 million in assets under management. It has returned 3.87% year to date.
The Innovator S&P Power Buffer Index (PJUL) was launched in 2018 and has 0.79% expense ratio. With $115 million in assets under management it has returned 4.79% year to date.
Volatility ETFs seek to capitalize on market volatility. Leveraged volatility ETFs offer the opportunity to achieve returns higher than the target index. However, due to being leveraged, they pose higher risk. Inverse volatility ETFs perform well in stable conditions and when volatility is low. However, should volatility return, these ETFs can lose their value very quickly. Volatility ETFs offer the opportunity to trade the volatility of stock markets. However since they use futures and options, they are riskier instruments.
Volatility ETFs can be effective tools to hedge, speculate and trade in your portfolio but make sure you know all you can about the ETFs you want to use and do your own due diligence.