4 Best VIX ETFs to Buy Today

4 Best VIX ETFs to Buy Today

When most people consider investing, they typically consider purchasing assets at low prices and holding onto them as the market rises. The market does not, however, constantly rise. It can drop occasionally or repeatedly swing up and down.

Cboe Global Markets developed the VIX, often known as the Cboe Volatility Index. It serves as a market volatility benchmark index based on S&P 500 options.The VIX increases when the market is erratic. The market declines when conditions are generally quiet. 

The VIX is frequently referred to as the “fear index” since it increases when investors are unsure about market movements and decreases when securities prices are more predictable.

In order to invest, investors might employ VIX exchange-traded funds (ETFs), depending on their perception of whether the market will become volatile soon. Investors must be aware that VIX ETFs typically lose money over the long term, making them only appropriate for short-term transactions by active investors. 

Inception Date of Expense Ratio

  • ProShares 10 million 0.85% VIX Mid-Term Futures ETF

Jan. 3, 2011

  • iPath Series B S&P 500 VIX Short-Term Futures ETN $692.8 million 0.89 percent

Jan. 19, 2018

  • ProShares Ultra VIX Short-Term Futures ETF ($814,000,095)

Oct. 3, 2011

  • Simplify Volatility Premium ETF $105 million 0.54 percent

May 12, 2021

ProShares Vix Mid-Term Futures ETF (VIXM)

  • As of May 12, 2022, 58 percent
  • 0.85% cost-to-revenue ratio
  • Assets under management (AUM): $110 million as of May 12, 2022.
  • Beginning date: January 3, 2011.

The ProShares VIX Mid-Term Futures ETF follows an index that aims to gauge the performance of VIX futures contracts with around five months remaining before expiration. This gives it a choice for those who want to invest based on their predictions of medium-term market volatility.

This fund, like all VIX funds, loses value over time due to the way it uses derivatives, but it has delivered a fantastic three-year return of 58 percent.With $110 million in assets, the fund is the smallest on the list. It has an expense ratio of 0.85%, or $8.50 for every $1,000 invested.

P 500 VIX Short-Term Futures ETN (VXX) from iPath Series B

  • As of May 12, 2022, the 3-year return was-36.64 percent.
  • Expense ratio: 0.89 percent
  • As of May 12, 2022, the assets under management (AUM) totaled $692.8 million.
  • Beginning date: January 19, 2018.

Investors looking for a strategy to make investments based on short-term volatility may be interested in the iPath Series BS & P 500 VIX Short-Term Futures ETN.This fund makes use of VIX futures contracts that expire in one or two months.

The fund has assets worth more than $792.80 million, which is significant because it indicates that investors wishing to actively trade the fund shouldn’t encounter liquidity concerns. It has a cost ratio of 0.89%, or $8.90 for every $1,000 invested. It’s important to note that over the last three years, this fund has lost 36.64 percent, demonstrating how VIX ETFs frequently aren’t suitable for long-term holding. 

ProShares Ultra VIX Short-Term Futures ETF (UVXY)

  • The 3-year return was -67.40 percent as of May 12, 2022.
  • Expense ratio: 0.95 percent
  • There were $814 million in assets under management as of May 12, 2022.
  • Start date: October 3, 2011.

For those who wish to base their investments on the short-term volatility of the S & P 500, another choice is the ProShares Ultra VIX Short-Term Future ETF. It makes use of futures contracts with a weighted average of one month till expiration, just like the iPath fund.

The fund uses leverage so that it can provide a daily return that is 1.5 times the change in its benchmark. This raises the possibility of investment risk by allowing for both higher rewards and higher losses.

Assets in the fund are $814 million, which is sufficient to offer traders liquidity. It is, however, the most expensive find on the list, with an expense ratio of 0.95 percent, or $9.50 for every $1,000 invested.Notably, the fund’s value has dropped by close to 67 percent over the previous three years. 

Simplified Volatility Premium ETF (SVOL)

  • As of May 12, 2022, the 3-year return is N/A.
  • Expense ratio: 0.54 percent
  • As of May 12, 2022, the assets under management (AUM) totaled $105 million.
  • Date of start: May 12, 2021

The newest ETF on this list, with an initiation date of May 12, 2021, is the Simplify Volatility Premium ETF. Despite being young, it has accumulated $105 million in assets because of its distinct investing approach.

In contrast to funds that try to follow the VIX, this fund buys VIX call options to lessen the impact of volatility spikes while selling VIX derivatives to other investors to generate an income stream.

The fund hasn’t been tested much yet because it’s so young. Since its beginning one year ago, it has generated a quarterly return of 6.41 percent, but it is unknown how it will fare in the long run. The fund has the lowest expense ratio on our list at 0.54 percent, or $5.40 for every $1,000 invested, which is one of its benefits. 

The Advantages and Disadvantages of Investing in VIX ETFs

Pros

  • Can you make money off of market turbulence?
  • simpler to comprehend and apply than derivatives.
  • best for trading in the short term.

Cons

  • can be pricey.
  • The value depreciates over time.
  • Long-term holding is not recommended.

Pros Presented

  • VIX ETFs can benefit from market turbulence. VIX ETFs are often built to lose value during calm markets and gain value during turbulence.
  • It is less difficult and easier to use than derivatives. Investors can use derivatives to attempt to profit from market volatility, but those techniques can be complicated. By allowing investors to buy shares in a fund rather than dealing with derivatives contracts, VIX ETFs make it simpler for them to invest based on their expectations of volatility.
  • Best for trading in the short term: These ETFs are used by active traders to generate returns during brief periods of market volatility; however, their value tends to plummet over time.

Cons Explanation

  • Costly potential It can be expensive to buy VIX ETFs.
  • Long-term value decline: VIX ETFs typically experience long-term value declines, with some funds on this list experiencing 95 percent or more declines in just three years.
  • Due to the risk that has been proven to be present in these ETFs’ track records over a number of years, they are not recommended for long-term investors.

The value of VIX ETFs typically declines over time. They can, however, make large gains in the short term, particularly during periods of market turbulence.

The VIX itself is erratic, shifting quickly in response to the mood of the market. When the epidemic started in 2020, it had a huge rise before declining to more normal levels later that year.

It has experienced rises and falls ever since. Since the VIX is so volatile, investors may also choose to buy at a high immediately before a market decline if they are astute and anticipate periods of market instability.

Am I a Good Fit for a VIX ETF?

The majority of ordinary investors are not intended for VIX ETFs. They are designed for traders who desire to engage in tactical, fast trades.

Taking a short-term VIX position might be a smart move if you think market volatility is set to increase or if you just want to protect another investment from volatility. They shouldn’t be considered for long-term portfolios by investors.

The conclusion

Thanks to VIX ETFs, investors can make investments based on market volatility forecasts.VIX ETFs will rise in value as volatility does. Regular traders who wish to hedge another investment or who think volatility is set to increase instead of long-term investors are the ones who should use them.

Questions and Answers (FAQs)

How do VIX ETFs work?

The VIX index is an index that rises when market volatility is high and lowers when volatility is low. VIX ETFs are products that attempt to track changes in the VIX index.

How can I purchase VIX ETFs?

Through your brokerage account, you can purchase VIX ETFs. You can place a buy order to specify how many shares you want to purchase or a buy-limit order, which enables you to specify both how many shares you want to purchase and the highest price you’re willing to pay per share.

When ought I to purchase VIX ETFs?

You should buy VIX ETFs when you anticipate increased market volatility because they tend to appreciate in value as the VIX rises. It’s crucial to only invest money you’re willing to lose, because this can be quite difficult to forecast.

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