This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

'Fear Index' ETF Goes on a Wild Ride

Stocks in this article: VXX VXZ

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.

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.

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.

Portfolio hedging has been a popular topic as the bear market has worn on with investors trying to find a hedging device that won't surprise them and an ETF industry seemingly intent on creating more solutions all the time. ProShares and Rydex have inverse and two-times inverse funds, Direxion has three-times inverse funds and IndexIQ has listed two ETFs that purport to provide hedge-fund strategies to individual investors. The latest is a filing from a company called FactorETF that plans to launch funds that will pit various asset classes and stock-market segments against each other to capture relative outperformance or underperformance. This space will only get larger.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs