Stock prices move—that's what they do. That movement is what keeps the stock market churning. It allows investors to make a profit, provides liquidity, and reflects the performance of the companies behind the stocks.
While all stocks move, they don't all move at the same pace. Some move much more rapidly than others, and this relatively extreme movement is commonly referred to as volatility. As some stocks can be more volatile than others, there are times when the entire stock market is more volatile than usual.
When a sector or stock market is experiencing volatility, it presents opportunities for investors who know how to use ETFs to play that volatility.
The VIX Index
Investors may want the opportunity to trade volatility if they have an opinion about market “activeness." In other cases, they might want to protect their portfolios from the movement and hedge volatility. This is where the VIX Index comes into play.
Created as an index to track stock market volatility, the index is calculated by the Chicago Board Options Exchange (CBOE). It is considered a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. It is the U.S. stock market's premier barometer of investor sentiment and volatility, and many related products have launched since the inception of VIX. These related products use the index as an underlying asset or benchmark for investors hoping to play volatility.
List of Volatility ETFs and ETNs
Below is a list of products available to investors who want to use ETFs to play market volatility. Market volatility and the VIX tend to increase as the market declines and vice versa, so watch how these funds react to market swings and decide which are the best fit for your portfolio.
You'll notice that there are more ETNs than ETFs, but this ratio may change over time. If you're unfamiliar with ETNs, they essentially trade like an ETF, though they are technically different products. For the purpose of this list, they achieve largely the same effect of playing off market volatility.
Also, note that some of these products mention VSTOXX instead of VIX. Investors can think of VSTOXX as the European VIX—it tracks the volatility of the EURO STOXX 50, instead of the S&P 500.
ETFs and ETNs are updated regularly. New ones are created. Old ones may be closed out altogether. This list is current as of Jan. 26, 2020, but no matter when you read it, it's best to further research any products that interest you to ensure that they will still help you achieve your investment goals.
- EXIV - VelocityShares 1X Daily Inverse VSTOXX Futures ETN
- EVIX - VelocityShares 1X Long VSTOXX Futures ETN
- SVXY - ProShares Short VIX Short-Term Futures ETF
- TVIX - VelocityShares Daily 2X VIX Short-Term ETN
- TVIZ - VelocityShares Daily 2X VIX Medium-Term ETN
- UVXY - ProShares Ultra VIX Short-Term Futures ETF
- VIIX - VelocityShares Daily Long VIX Short-Term ETN
- VIIZ - VelocityShares Daily Long VIX Medium-Term ETN
- VIXM - ProShares VIX Mid-Term Futures ETF
- VIXY - ProShares VIX Short-Term Futures ETF
- VXX - iPath Series B S&P 500 VIX Short-Term Futures ETN
- VXZ - iPath Series B S&P 500 VIX Mid-Term Futures ETN
- XXVFF - iPath Inverse S&P 500 VIX Short-Term Futures ETN
- XVZ - iPath S&P 500 Dynamic VIX ETN
- ZIV - VelocityShares Daily Inverse VIX Medium-Term ETN
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.