Volatility Shares has added a third fund to its volatility-focused ETF line-up with the new product providing inverse exposure to mid-term VIX futures.
VIX-linked ETFs enable investors to manage their volatility exposure independent of the direction of the stock market.
The VIX is an uninvestable index that measures the market’s expectation for volatility in US large-cap equities over the next 30 days. It is derived from implied volatility in near-term S&P 500 options contracts.
VIX futures, meanwhile, are liquid volatility products based on the VIX which enable investors to manage their volatility exposure independent of the direction of the stock market.
Volatility Shares’ newest fund, the -1x Short VIX Mid-Term Futures Strategy ETF (ZIVB US), has been listed on Cboe BZX Exchange with an expense ratio of 1.35%.
ZIVB provides inverse (-100%) daily exposure to the S&P 500 VIX Mid-Term Futures Index which measures the return of a portfolio of long positions in the fourth, fifth, sixth, and seventh-month VIX futures contracts. The index rolls daily throughout each month from the shortest-term contract into the longest-term contract while maintaining positions in the middle two contracts.
The new listing follows Volatility Shares’ debut ETFs which launched in April 2022 and provide inverse (-100%) and leveraged (+200%) daily exposure to short-term VIX futures. These funds are the -1x Short VIX Futures ETF (SVIX US) and 2x Long VIX Futures ETF (UVIX US).
Collectively, the three ETFs represent tactical tools for institutional investors looking to manage their volatility exposure.
Each ETF has been designed to address the flaws of past volatility-linked products, weaknesses that came to the fore in February 2018 when a spike in US equity market volatility, a period that has subsequently been named ‘Volmageddon’, led to significant losses across VIX ETNs.
Firstly, similar to all ETFs, the three Volatility Shares funds are backed by underlying assets and are not subject to counterparty risks inherent in ETNs which are actually unsecured debt obligations. This makes them far less likely to blow up or be withdrawn without notice during periods of heightened market stress.
Secondly, the ETFs’ underlying indices determine their daily settlement prices from a time-weighted average of prices recorded over the last 15 minutes of the trading session, or even longer if required. This compares with previous products that would just use the 4 p.m. settlement price, potentially leading to larger spikes if there was panicked trading right at the day’s close.
Investors should note, however, that all inverse and leveraged ETFs are typically suitable only for sophisticated traders who understand the risks involved, in particular how these products tend to decay in value if held for an extended period of time.