Okay, there are new products that are not exactly the return of those two very popular ETN’s representing volatility trading, but two new ETF’s are attempting to do the same thing, says Larry McMillan of Option Strategist.
2x Long VIX Futures ETF (UVIX) is double the COBE SPX Volatility Index (VIX), and 1x Short VIX Futures ETF (SVIX) is the inverse of VIX. These are at the same speed that the old ones were. Currently, the only products that are similar are ProShares Ultra VIX Short-Term Futures ETF (UVXY) (1.5 times the speed of $VIX) and ProShares Short VIX Short-Term Futures ETF (SVXY) (half the speed of the inverse of $VIX).
Both of those used to have higher multiples (two and one, instead of the current 1.5 and 0.5), but the frailties that were exposed in the volatility explosion of February 2018 caused those constants to be reduced and also caused the previous popular and heavily traded VelocityShares Daily 2x VIX Short-Term ETN (TVIX) and VelocityShares Daily Inverse VIX Short Term ETN (XIV) to be delisted.
Both of these new products, UVIX and SVIX, have listed options.
We will continue to monitor their progress, but they seem to be a welcome addition to the array of products available in the volatility space. I would encourage readers to go to the Volatility Shares website and download the prospectus of each ETF, so that you have a full understanding of how they are calculated and priced.
These two new ETF’s are based on two of the many indices that the CBOE calculates daily—short-vol and long-vol in this case. Those indices are calculated using the price of VIX futures. In fact, all of the volatility based ETNs’ and ETF’s use VIX futures as their underlying. As a result, there is a wasting away over time in a bull market, when the term structure of the $VIX futures slopes upwards.
There is also a blog post about these products on the “The Option Insider Radio Network,” with the topic: Volatility Views: XIV Rides Again.
Of course, we all remember what happened in early Feb 2018, when the price of the VIX futures doubled in one day. That made XIV worthless, and it appears that it could happen with SVIX (the “short VIX” ETF). So, understand what you’re doing if you trade these products.
They are certainly viable, but require your understanding before you trade.
