VIXY: The 2025 Market Paradox Investing Tool
- Buying volatility when fear fades has been a winning contrarian move this year.
- Volatility ETFs may offer an opportunity in a year where expecting the unexpected has become a reliable strategy.
Expect the unexpected. This investing paradox is becoming a major investing theme for capital markets in 2025, and volatility exchange-traded funds like the ProShares VIX Short-Term Futures ETF (VIXY) have emerged as tools to profit from the chaos.
Uncertainty has always been part of the investing landscape, but this year has delivered a level of unpredictability that even seasoned investors find challenging.
Trade policies have shifted repeatedly, leaving the ultimate economic impact unclear. Geopolitical tensions, from Eastern Europe to the Middle East, simmer, ease, then flare up again. And despite endless analysis, no one seems sure whether inflation and interest rates are headed higher, lower or simply sideways.
Against this backdrop, volatility ETFs have captured traders’ attention.
Tuesday’s 6%+ spike in VIXY, driven by the latest escalation between Israel and Iran just after it seemed tensions had cooled, is the latest reminder of how fragile market confidence is this year.
VIXY: How It Works and Why It's Back in 2025
The VIXY ETF is designed to provide exposure to the CBOE Volatility Index (VIX), often called the market’s “fear gauge.” But VIXY doesn’t hold the VIX directly; it tracks futures contracts tied to the VIX, with a focus on short-term maturities.
Since the pandemic’s height in 2020, when the VIX soared above 80, volatility has generally trended lower as markets recovered and adjusted to new economic realities. That meant VIXY, which thrives on sustained spikes in volatility, saw its performance erode steadily from 2021 to 2024 as fear ebbed.
But 2025 has rewritten the script. The specter of stagflation, the unpleasant combo of stubborn inflation and a weakening economy has rattled both equity and bond markets. Every conflicting inflation print or unexpected rate move by central banks injects new uncertainty.
Add in the stop-and-start nature of global conflicts, and you have a recipe for volatility spikes and a resurgence of interest in ETFs like VIXY.
Contrarian Mindset: Buying Volatility When Others Aren’t
Savvy traders know that volatility tends to arrive when it’s least expected. That’s why some contrarian investors use VIXY not as a reaction to fear but as a preemptive bet that fear will return.
In relatively calm markets, when the VIX is low and VIXY is cheap, these traders may start building positions, essentially wagering that some combination of economic surprise, geopolitical flare-up or policy misstep will send markets into a tailspin. This strategy embodies the paradox of 2025: Expect the unexpected.
With shifting trade rules, uneven growth and no clear path for inflation or interest rates, calm can turn into chaos at shocking speed. For some, VIXY is the tool they use to hedge that possibility or to try to profit when others panic.
Double-Edged Sword: Volatility ETFs Are Risky Tools
While VIXY can be a powerful instrument in volatile markets, it’s important to understand that these ETFs aren’t built for long-term holding. Here’s why:
- VIX futures contracts, which VIXY uses, lose value over time in most market environments due to the cost of rolling from one futures contract to the next (known as “contango”).
- VIXY’s value can erode even when volatility stays flat, making it a poor choice for a buy-and-hold strategy.
- Ironically, VIXY itself can be more volatile than the VIX because of its structure and the leverage embedded in rolling short-term futures.
In short, while VIXY may seem attractive in a year like 2025, it’s a tool best suited for tactical traders who actively manage their positions, not for investors looking for long-term exposure to volatility.
Final Thought on VIXY, Volatility ETFs
2025 has proven that uncertainty remains the one true constant in the markets. While instruments like VIXY offer a way to bet on, or hedge against, that uncertainty, they come with complexities and risks that demand careful consideration.
For those who can navigate them wisely, volatility ETFs may offer an opportunity in a year where expecting the unexpected has become the most reliable strategy of all.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in ETFs involves risks, and investors should carefully consider their investment objectives and risk tolerance before making any investment decisions.
At the time of publication, Kent Thune did not hold a position in VIXY.
