Trading in Volatility ETFs Rises with VIX

ETF Trends

With the VIX trading at its highest levels since the middle of April and flirting with a $17 handle once again this morning, linked “long volatility” ETPs have been in heavy play.

VXX (iPath S&P 500 VIX Short Term Futures ETN, Expense Ratio 0.89%), the largest “Volatility” based ETP in the marketplace with more than $1.38 billion in assets under management has seen above average trading volume in the the past few sessions, as have UVXY (ProShares Ultra VIX Short Term Futures ETF, Expense Ratio 0.95%), VIXY (ProShares Short Term Futures ETF, Expense Ratio 0.85%) and TVIX (VelocityShares 2X VIX Short Term ETN, Expense Ratio 1.65%), which are other leading ETFs in the marketplace in terms of assets under management, trading volume, and popularity.

We expect this activity to accelerate this week as long as equities continue to soften and intraday trading ranges have widened in recent sessions as well.

Although Volatility related ETPs have been much maligned by both the media as well as some segments of the investment management community in recent years, it does not change the fact that the suite of “Long Short Term Vol” products on the market has had a very strong year thus far in 2013 in terms of attracting net new assets.

In layman’s terms “people still use them.” For instance, VXX has reeled in $800 million in new assets YTD, followed by UVXY (+$441 million), TVIX (+$188 millioin), and VIXY ($+174 million). While these products (and on the other side of the coin, “Short Vol” products) are not tied to “spot” VIX, but instead VIX futures as has been mentioned in these columns countless times previously, they continue to remain popular with short term traders and arbitrageurs alike, peppered with increasingly heavy institutional usage for hedging and/or aggressive speculation on a portfolio level.

Relevant “Short Short Term Vol” products that will also likely see accelerated activity in the near term include the very popular XIV (VelocityShares Daily Inverse VIX Short Term ETN, Expense Ratio 1.35%) with 15.6 million shares traded on a daily basis and the growing SVXY (ProShares Short VIX Short Term Futures ETF, Expense Ratio 0.95%) which now has $40 mln in AUM and ADV of 780k shares.

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

Street One Financial is an educational/research firm utilizing the Broker Dealer services of GWM Group Inc (RLCC) a FINRA registered Broker/Dealer. All trades are executed through GWM Group (RLCC) and cleared by Fidelity (NFS)DTC number 0226. Street One Financial LLC makes available products and services offered by GWM Group Inc., a registered broker-dealer and Member Securities Investor Protection Corporation (SIPC), Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.

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