Inverse, Double VIX ETFs Return

March 30, 2022

The U.S. ETF market has an inverse volatility fund trading once again, more than four years after “Volmageddon” wiped out $2 billion in assets tied to the strategy. 

The -1x Short VIX Futures ETF (SVIX) and the 2x Long VIX Futures ETF (UVIX) debuted on the Cboe Global Markets Wednesday with respective management fees of 1.35% and 1.65%. 

The funds provide inverse and double the return on an index tracking short-term VIX futures over the course of a single day, making it a more targeted approach compared with the ProShares Short VIX Short-Term Futures ETF (SVXY) and the ProShares Ultra VIX Short-Term Futures ETF (UVXY) that provide inverse and 1.5x exposure to an index of first- and second-month VIX futures. 

The funds are the first from Volatility Shares, which initially submitted a draft registration for SVIX in December 2019. It spent the past two years answering regulator questions, according to a review of correspondence records. 

“Because the ETNs had suffered as they had, there were a lot of eyes on this approval, to the point that it eventually went to the Commissioners for final review, and that's very uncommon for an ETF,” said VolatilityShares Chief Investment Officer Stuart Barton. 

SVIX’s launch is the first fund to try the daily short VIX trade since the so-called Volmageddon events of Feb. 5, 2018. After months of relatively staid volatility, the VIX doubled in a single day and forced existing short funds to buy futures at increasingly high prices to keep their funds in line with net asset value. 

Credit Suisse’s inverse VIX note plummeted from $1.9 billion in assets to $63 million in one trading session, and would close 10 days later. 

Use of the exchange-traded note structure instead of the ETF wrapper for VIX exposure has drawn criticism more recently after Barclays halted new creations for its iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) in mid-March. The bank announced this week that it had oversold shares for that and another ETN, and would take a $592 million charge to buy back those shares at market price. 

VolatilityShares aims to prevent a price spiral by limiting the amount of futures it can buy in one day to 10% of the entire volume of contracts, and calculates the fund from the average price of daily contracts during the last 15 minutes of each trading session. The firm can also extend the rebalancing period in times of unusual volatility. 

 

Contact Dan Mika at [email protected], and follow him on Twitter 

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