ETNs as Trend Tracker: S&P 500, Oil, Gold

At the top of investors' minds are the benchmark S&P 500 Index, oil and gold.

That's according to the most popular exchange traded notes, or ETNs. The most active is the iPATH S&P 500 VIX Short-Term Futures ETN(VXX Quote), which has an average daily volume of $71.5 million in notes changing hands over the past five trading days. That's impressive considering the ETN has been trading only since January.

The hedging tool is tied to an index that tracks the two front-month futures contracts of the CBOE Volatility Index, 79% of which is in the October 2009 futures contract and 21% is in the November contract. Like all ETNs, this security is a senior, unsubordinated debt instrument by a bank, in this case Barclays Bank(BCS Quote).

Exchange traded notes are similar to exchange traded funds, or ETFs, in that they trade like stocks and can be sold short. They differ in that holders of ETNs have a debt claim against a bank and none on any underlying basket of stocks or commodities.

Being a debt security adds a level of credit risk in assuming that the bank can survive long enough to close out the ETN trade. Still, the ETN structure allows for closer tracking of the underlying index.

The second-most actively traded ETN, PowerShares DB Crude Oil Double Short ETN(DTO Quote), averaged $41.1 million in volume over the past five days.

Crude oil for November delivery tumbled to about $68 a barrel on the New York Mercantile Exchange after inventories posted their biggest gain since the end of July. Crude hit a high of $75 a month ago. Still, prices have soared more than 50% since January.