5 VIX Funds for Fear-Riddled Markets

No matter which side of the debt-ceiling debate you fall on, looking at the
facts may be shocking. This is the first and only downgrade of U.S. debt in
history, which is what likely prompted such a massive sell-off on Monday (August
8). In fact, the sell-off was one of the worst in recent memory, as the S&P 500
sank nearly 6.7% while the Nasdaq was flirting with losses of 7%. Needless to
say, the past few trading sessions have seen some of the most volatile markets
imaginable, as securities have endured something of a roller coaster ride. With
markets in a frenzy, volatility exchange-traded notes (ETNs) and exchange-traded
funds (ETFs) have been in high demand by investors and traders alike. This is
because these vehicles offer exposure to the theoretical "fear" index known
as the Volatility Index (CBOE: VIX ), allowing investors to directly invest in
market volatility. Prior to the advent of ETFs, access to this market was
limited, but now there is a wealth of options available to the average, everyday
investor. With volatility ETFs sitting in the limelight, we outline five popular
funds and how they have fared in the past few days of severe market instability.
S&P 500 VIX Short-Term Futures ETN (NYSE: VXX ) VXX is by far the most popular
volatility ETN, as it tracks short-term VIX futures. On Monday, the fund
experienced an astonishing volume of 102 million shares traded, as compared to
its average daily volume of just 31 million. Last Thursday, during our first
major sell-off, VXX jumped 20% along with shooting up nearly 15% on Monday. Bear
in mind, however, that this product is still down over 40% for 2011. Daily
Inverse VIX Short-Term ETN (NYSE: XIV ) This ETN is simply the inverse
counterpart to VXX and has turned in quite a different performance over the past
few days. XIV had been one of the top performing exchange-traded products (ETPs)
of 2011 until recent weeks, which saw shattering trading sessions, with a
one-week return of -26.7%, pushing the fund down to a year-to-date (YTD) return
of -2%. Thursday saw XIV plummet by 19.4%, and Monday produced losses of 14.6%,
while its average volume was increased six-fold during Monday's session.
C-Tracks ETN Citi Volatility Index Total Return (NYSE: CVOL ) CVOL treats
volatility a bit differently, as it tracks implied volatility. So far in 2011,
this product is down an abysmal 38.8%, but for traders patient enough to wait it
out, this ETF has provided unprecedented returns in recent days. Aside from its
gains of 33.4% on Monday, its four-week return comes in at 81.8%,
differentiating itself from VXX and possibly making for an intriguing
alternative in the volatility space. S&P 500 VIX Mid-Term Futures ETN (NYSE: VXZ
) VXZ comes from a similar family as VXX, though it tracks mid-term futures as
opposed to short-term, giving it a very different risk/return spectrum. This ETF
brings in tamer returns, as it "only" jumped 8.4% on Monday. However, the
fund also has a much better longer-term performance: VXZ is down 18% on the year
but is up 13.6% over the past four weeks. This fund is less popular than its
fellow volatility products, as it averages about 850,000 shares exchanged daily,
making it less liquid than the major players like VXX and XIV, but possibly a
fund that is less impacted by adverse conditions such as "contango." Daily
2x VIX Short-Term ETN (NYSE: TVIX ) As if measuring volatility was not enough,
TVIX puts 2x leverage on short-term VIX contracts, making it one of the most
volatile ETFs available on the entire market. On Thursday, this fund shot up 40%
and has posted a jaw-dropping return of 105% over the last two weeks, making
TVIX the official volatility winner for the last few dismal trading sessions and
a potential favorite for investors seeking to bet on further volatility. This
article originally appeared on MoneyShow.com and was written by Jared Cummans of
ETFdb.com .