VIX-Related Exchange-Traded Products
The growth of VIX futures and options trading has been tremendous over the past few years. Following on this success, exchange-traded products have been introduced that follow a volatility related strategy. There are only a handful of volatility-related exchange-traded products. Despite only a relative small number of them being available, they have become very popular with short-term traders. The iPath S&P 500 VIX Short Term Futures ETN (VXX) and ProShares Ultra VIX Short-Term Futures ETF (UVXY) consistently have short-dated options available for trading.
■ iPath S&P 500 VIX Short Term Futures ETN (VXX)
VXX was the first exchange-traded product to be listed based on a volatility-related strategy. It was issued in 2009 when VIX was near 50. Since 2011 VIX has been in a more subdued mood, averaging around 20. This lack of implied volatility in the overall equity market has resulted in VXX continuously grinding lower. Figure 20.1 is a chart of VXX since inception through June of 2013.
The chart shows that, on a split-adjusted basis, VXX has traded down from 1900 to around 20. This is a function of the index that VXX was created to follow. The performance of VXX is based on a portfolio that holds the front two-month VIX futures contracts. In a low-volatility environment ...