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VIX, Volatility ETFs Reflect a Mellowed Market Outlook

This article was originally published on ETFTrends.com.

The CBOE Volatility Index and VIX-related ETFs pulled back Wednesday, reflecting investors' sigh of relief as the veil of uncertainty is lifted with the midterm elections behind us.

On Wednesday, the iPath S&P 500 VIX Short Term Futures ETN (VXX) and ProShares VIX Short-Term Futures ETF (VIXY) both declined 6.2% Wednesday while the CBOE Volatility Index, or so-called VIX, plunged 14.2% to 17.07 in late trading. Potential investors should keep in mind that VIX-related exchange traded products track VIX futures and not the spot price.

Meanwhile, the ProShares Short VIX Short-Term Futures ETF (SVXY) , which follows the inverse or -100% daily performance of VIX futures, gained 3.1%.

“The uncertainty around the midterms is over, so the markets are rallying...we’re not expecting any major policy implications over the next two years,” Massud Ghaussy, senior analyst at Nasdaq IR Intelligence, told Reuters.

CBOE Volatility Index slips

The CBOE Volatility Index slipped to its lowest level in almost a month. The Spot VIX was also trading below the front-month futures as well after hovering well above the futures on Tuesday.

The Wall Street measure of fear or implied volatility in the equity market reflected a more complacent market after U.S. midterm elections passed without any significant surprises for investors. Many observers anticipated a split congress, with Democrats gaining a majority in the House of Representatives and Republicans widening their lead in the Senate.

The lowered risk outlook as reflect in the VIX indicated investors more or less welcomed the election results or at least highly anticipated the results.

“Democrats take the House, Republicans keep the Senate. The only surprise is the lack of one for investors conditioned to expect it after Brexit and 2016,” Morgan Stanley analysts in a research note on Wednesday morning, the Financial Times reports.

For more information on the CBOE Volatility Index, visit our VIX category.