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Traders Are Betting Big on Increasing Volatility

Tuesday, November 1, 2016 9:25
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vix-fearDon’t look now, but the VIX has risen in six straight trading sessions, including today, and is all of a sudden above $18 after being as low as $12.73 on an intraday basis in late October.

Long Volatility ETPs such as VXX (iPath S&P 500 VIX ShortTerm Futures ETN, Expense Ratio 0.89%, $1.9 billion in AUM), UVXY (ProShares Ultra VIX Short-Term Futures ETF, Expense Ratio 0.95%, $728 million in AUM), TVIX (VelocityShares Daily 2X VIX Short-Term ETN, Expense Ratio 1.65%, $347 million in AUM), and VIXY (ProShares VIX Short-Term Futures ETF, Expense Ratio 0.85%, $233 million in AUM) have responded, and are higher today. These funds have bounced off of recent all-time lows, but as expected, the returns compared to spot VIX are off the mark significantly once again due to the effects of contango in the VIX futures markets.

Nonetheless, in the trailing one month period VXX has pulled in over $400 million in new assets via creation flows, while these other competing “Long Volatility” products have also attracted new monies — though in notably lesser amounts — during this time period. We had also mentioned in a recent previous piece that an “Inverse” Volatility product SVXY (ProShares Short VIX Short-Term Futures ETF, Expense Ratio 0.95%, $317 million in AUM) has seen very considerable redemption outflows in the trailing one-month period as well, to the tune of more than $170 million leaving the fund.


An “Inverse” Volatility product that competes with SVXY, XIV (VelocityShares Daily Inverse VIX Short-Term ETN, Expense Ratio 1.35%, $536 million in AUM) has also seen some position trimming with more than $110 million vacating the fund in the trailing one month period as well.

The obvious takeaway here is “investors are speculating on higher volatility” judging from the net inflows/outflows activity that we have witnessed in the “Volatility” ETP space. This is in tandem with the recent parabolic move in the VIX itself heading into FOMC rate decision uncertainty (tomorrow’s announcement as well as the December anticipated decision), along with the U.S. Presidential election jitters that have taken on a life of their own, with one outrageous story seemingly followed by another lately involving the candidates.

Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch
paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.

Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.

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