The VIX, like any other index, cannot be purchased directly. However, a number of exchange-traded funds (ETFs) are designed to track the movement of the index. One such ETF is the ProShares VIX Short-Term Futures ETF (VIXY).
The S&P 500 VIX Short-Term Futures Index keeps the fund up to date with the VIX. This index looks at the performance of a group of futures contracts with a weighted average expiration of one month.
VIXY isn’t for everyone, and ProShares only recommends it to experienced investors. VIXY investors tend to fall into one of two types. Either they want to profit from expected increases in S&P 500 volatility, or they want to protect themselves from stock market downturns.
While there is a correlation between VIXY and the VIX, there is not a straight link. As a result, VIXY values frequently diverge significantly from the VIX itself.
What exactly is the distinction between Vixy and VXX?
The iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) and the ProShares VIX Short-Term Futures ETF (VXX) are compared and contrasted here (VIXY). VXX debuted on January 18, 2018, while VIXY debuted on January 2, 2011. The expense ratio for VXX is 0.89 percent, which is greater than the expense ratio for VIXY, which is 0.85 percent.
Scroll down to see how performance, risk, drawdowns, and other metrics compare visually and determine which one is best for your portfolio: VIXY or VXX.
How is Vixy determined?
The VIX is derived by multiplying the number of days in a month by the number of days in “By averaging the weighted prices of out-of-the-money options and calls, you may compute predicted volatility.” In the example below, we’ll start on the far left of the formula with options that expire in 16 and 44 days, respectively. On the left, there is a symbol ” symbolizes the result of multiplying the square root of the sum of all the integers to the right by 100.
- The time is shown by the first set of integers to the right of the “=”. This value is calculated by multiplying the nearest term option’s time to expiration in minutes by 525,600, the amount of minutes in a 365-day year. The time to expire in minutes for the 16-day option will be the amount of minutes between 8:30 a.m. today and 8:30 a.m. on the settlement day, assuming the VIX calculation time is 8:30 a.m. In other words, the period until expiration excludes today’s midnight to 8:30 a.m. and the settlement day’s 8:30 a.m. to midnight (full 24 hours excluded). We’ll be working with a total of 15 days (16 days minus 24 hours), therefore 15 days x 24 hours x 60 minutes = 21,600 minutes. For the 44-day option, use the same approach to calculate the duration to expiration in minutes: 43 days x 24 hours x 60 minutes = 61,920 (Step 4).
- The result is multiplied by the option’s volatility, which in this case is 0.066472.
- The difference between the number of minutes before the next term option expires (61,920) minus the number of minutes in 30 days is then multiplied by the result (43,200). This result is divided by the difference between the number of minutes until the next term option (61,920) expires (minus the number of minutes until the near term option expires) (21,600). If you’re wondering where the 30 days comes from, the VIX is based on a weighted average of options with a constant maturity of 30 days.
Is it possible to purchase Vixy?
Investors cannot purchase VIX, and even if they could, it would be a high-risk investment. 1. The Volatility Index (VIX) of the Chicago Board Options Exchange is a market assessment of future volatility. The implied volatilities of a wide range of S&P 500 index options are used to create VIX.
Does VXX produce k1?
It’s all about the tax. It’s simple to use VXX. You acquire and sell in a tax-efficient manner. VIXY is a shambles. You’ll get a K-1 the next year if you’re structured as a partnership. So, if you want to trade regularly, VIXY will drive you insane come tax time. Some people believe there is a benefit to holding a futures-trading fund. Why? Regardless of the time duration, most futures are treated as 60/40 long and short-term capital gains. A contract exemption under Section 1256 is what this is known as. Most swaps are exempt from the restriction under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which won’t be an issue for most plain vanilla tactics. The writing is on the wall, however, that these favorable treatments, like the tax advantages of ETNs, are subject to Congress’s whims. To that end, I feel the 60/40 split is significant, but you’ll notice that holding volatility instruments like VXX and VIXY is a losing proposition.
Let’s go right to the point and look at some charts for two-year (Figure 1) and one-month returns (Figure 2). Sure, VXX and VIXY have similar motions, but what are they similar to? Certainly not the VIX itself. When it comes to determining which product to trade, there is virtually no tracking error between the two. However, if you sit in a static posture for an extended period of time waiting for a biblical flood, your return will be nil.
Is VIXY something I can hold?
This ETF should never be held in a buy-and-hold portfolio for the long term; it is designed as a trading instrument for people wishing to make a short-term wager against the market or use as a hedging tool. One structural note: VIXY is an exchange-traded fund (ETF), whereas VXX and VIIX are exchange-traded notes (ETNs).
Is VIXY a VIX tracker?
Insights from VIXY Factset Analytics VIXY is a commodities pool ETP that provides exposure to short-term VIX futures, which distinguishes it from other short-term VIX ETPs that cover the volatility space as ETNs.
What does VIXY stand for?
The volatility index, also known as the VIX, is a standardized measure of market volatility that is frequently used to gauge investor panic. ETFs that track the VIX can be traded by investors to speculate on or hedge against future market movements.
Is a high VIX positive or negative?
The VIX is deemed high when it exceeds the resistance level, which is a signal to buy stocks, particularly those that represent the S&P 500. Support bounces signal market tops and warn of a possible S&P 500 decline.
The elastic nature of implied volatility is perhaps the most important takeaway from Figure 1. A brief examination of the data reveals that the VIX typically oscillates between 18 and 35 points, with outliers as low as 10 and as high as 85. In general, the VIX eventually returns to its mean. Understanding this characteristic is beneficial, much as understanding the VIX’s contradictory nature can assist options investors in making better selections. The VIX returned to its typical range even after the extraordinary bearishness of 2008-2009.
What is an appropriate VIX number?
When the market is declining, the volatility value, investor worry, and VIX values all rise. When the market rises, the value of the indexes, fear, and volatility all fall.
A real-world analysis of historical data dating back to 1990 reveals multiple instances in which the general market, as represented by the S&P 500 index (orange line), surged, causing VIX levels (blue graph) to fall around the same time, and vice versa.
It’s also worth noting that VIX movement is substantially greater than that of the underlying equities index. For example, when the S&P 500 fell roughly 15% from August 1, 2008 to October 1, 2008, the VIX increased by nearly 260 percent.
In absolute terms, VIX values greater than 30 are typically associated with high volatility as a result of increasing uncertainty, risk, and investor apprehension. When the VIX falls below 20, the markets are generally stable and stress-free.