LemonTrades
TL;DR
- You can’t buy the VIX itself. VIX ETFs such as VIXY, UVXY and the VXX note hold VIX futures instead.
- Those futures usually cost more than the VIX, so the funds lose value month after month in calm markets. Over their lives they’ve lost more than 99%, after reverse splits.
- They’re trading tools for days or weeks, mainly as a hedge in a sell-off, not investments to hold.
- LemonTrades tells you what moved the market, and why, as it happens, with alerts on sharp moves.
The VIX measures how much traders expect the S&P 500 to swing over the next 30 days. It spikes when markets panic.
The main VIX funds
| Fund | What it does | Yearly fee |
|---|---|---|
| VIXY (ProShares) | Holds 1-month and 2-month VIX futures | 0.85% |
| UVXY (ProShares) | 1.5 times the daily move of those futures | 0.95% |
| VXX (iPath) | An exchange-traded note on the same futures | 0.89% |
| SVXY (ProShares) | The opposite: −0.5 times, gains when fear falls | 0.95% |
Why they lose value over time
Most of the time, VIX futures for next month cost more than this month’s, a pattern called contango. Each day, the fund sells cheaper near-term futures and buys pricier later ones, and the futures drift down toward the lower VIX. That roll cost eats away at the fund. Leveraged UVXY decays faster still.
When they pay off
In a sudden panic, the VIX can double in days, and VIX funds can jump 50% or more. Traders use them as short-term insurance for a stock portfolio, or to bet on a spike around an event. Timing is everything: the gains fade fast once fear eases.
The risks
- Long-term holders almost always lose.
- UVXY can lose a large part of its value in weeks of calm.
- Inverse funds like SVXY can be wiped out in one day of panic; that happened to a similar fund in February 2018.
- These are complex products; read the prospectus.
Fear right now: see is the market crashing and the crypto fear and greed index. For steadier hedges, see gold vs bonds.
Sources
Education, not financial advice. All investing involves risk, including the loss of your money. See our disclaimer.
