Profit From The Market’s Panic With VIX ETF’S (VXX, VXZ)

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July 22, 2009 11:00am ETF BASIC NEWS NYSE:VXX

market-fear-panicThe market has had quite a bit of fear in the last two years, here is a way to profit from fear in the markets with ETF’s.  “The VIX exchange traded notes from iPath have experienced wild trading and intense emotions in the marketplace. The funds are the iPath S&P 500 VIX Short Term Futures ETN (VXX)


, which targets one- and two-month futures, and the VIX Medium Term Futures ETN(VXZ), which focus on futures expiring in four to seven months. VIX, the CBOE Volatility Index, is a measure of market expectations using the S&P 500 Index,” Roger Nusbaum From The Street Reports.

“There seemed to have been two uses, or potential uses, when the funds were first listed. One was to speculate on the movement of the VIX index and the other as a potential hedge for a portfolio. An unknown factor at the start was how these might trade in the real world. The nature of the futures contracts is that they represent the market’s perception of where the VIX index will be at expiration. This means that, potentially, the ETNs can diverge from the underlying index. It also means that the Short Term Futures ETN should track closer to the underlying index than the Medium Term Futures ETN — most of the time, anyway. “Most of the time” is key here because there are very few absolutes. Any decision to use these for either purpose must consider that fact,” Nusbaum Reports.
 
“The VIX index is often referred to as the “fear index,” with the thinking being that VIX goes up when the market goes down. This may be true as a generalization but not as an absolute. Again, there are very few absolutes,” Nusbaum Reports.

Here is the description of both ETF’s below:

The investment (VXZ) seeks to replicate, net of expenses, the S&P 500 VIX Mid-Term Futures Total Return Index. The index offers exposure to a daily rolling long position in the fourth, fifth, sixth and seventh month VIX futures contracts and reflects the implied volatility of the S&P 500 Index at various points along the volatility forward curve. The index futures roll continuously throughout each month from the fourth month VIX futures contract into the seventh month VIX futures contract.

The investment (VXX) seeks to replicate, net of expenses, the S&P 500 VIX Short-Term Futures Total Return Index. The index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects the implied volatility of the S&P 500 index at various points along the volatility forward curve. The index futures roll continuously throughout each month from the first month VIX futures contract into the second month VIX futures contract.

Full Story: HERE

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