Inverse Volatility

Inverse volatility mutual funds and ETFs are designed to offer a fixed... Inverse volatility mutual funds and ETFs are designed to offer a fixed inverse multiple of the daily returns of the VIX Index. The VIX measures implied volatility on U.S. equity options. The fixed multiple can range from 1x to 3x. For example, if VIX futures fall 1% on a given day, a 1.5X inverse ETF linked to VIX futures should rise 1.5%. On the other hand, if VIX futures rise 1%, this same fund should decline by 1.5%. To achieve their objectives, inverse volatility mutual funds and ETFs usually enter into derivative contracts with banks and other financial institutions. It's important to note that these funds are only meant for very-short term trading. Because they are rebalanced daily depending on market fluctuations, inverse funds may not produce the same result if held for weeks, months or longer. In fact, it’s quite possible that an inverse fund may fall in value over a longer period, even if the VIX Index falls. Accordingly, inverse volatility mutual funds and ETFs are only appropriate for short-term traders with a large appetite for risk. Last Updated: 12/27/2024 View more View less

Inverse volatility mutual funds and ETFs are designed to offer a fixed inverse multiple of the daily returns of the VIX Index. The VIX measures implied volatility on U.S. equity options. The fixed... Inverse volatility mutual funds and ETFs are designed to offer a fixed inverse multiple of the daily returns of the VIX Index. The VIX measures implied volatility on U.S. equity options. The fixed multiple can range from 1x to 3x. For example, if VIX futures fall 1% on a given day, a 1.5X inverse ETF linked to VIX futures should rise 1.5%. On the other hand, if VIX futures rise 1%, this same fund should decline by 1.5%. To achieve their objectives, inverse volatility mutual funds and ETFs usually enter into derivative contracts with banks and other financial institutions. It's important to note that these funds are only meant for very-short term trading. Because they are rebalanced daily depending on market fluctuations, inverse funds may not produce the same result if held for weeks, months or longer. In fact, it’s quite possible that an inverse fund may fall in value over a longer period, even if the VIX Index falls. Accordingly, inverse volatility mutual funds and ETFs are only appropriate for short-term traders with a large appetite for risk. Last Updated: 12/27/2024 View more View less