Leveraged Volatility

Leveraged volatility mutual funds and ETFs are designed to offer magnified exposure... Leveraged volatility mutual funds and ETFs are designed to offer magnified exposure to movements in the VIX Index. The VIX measures implied volatility on U.S. equity options. These funds aim to achieve a fixed multiple of daily returns compared to changes in the VIX. The leverage factor can range from 1.5% to 3x. For example, if VIX futures rise 1% on a given day, a 1.5% bull ETF linked to VIX futures should rise 1.5%. On the other hand, if VIX futures fall 1%, this same fund should decline by 1.5%. To achieve their objectives, leveraged volatility mutual funds and ETFs 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, leveraged funds may not produce the same result if held for weeks, months or longer. In fact, it’s quite possible that a leveraged fund may fall in value over a longer period, even if the underlying market rises.
Accordingly, leveraged 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

Leveraged volatility mutual funds and ETFs are designed to offer magnified exposure to movements in the VIX Index. The VIX measures implied volatility on U.S. equity options. These funds aim to achieve a... Leveraged volatility mutual funds and ETFs are designed to offer magnified exposure to movements in the VIX Index. The VIX measures implied volatility on U.S. equity options. These funds aim to achieve a fixed multiple of daily returns compared to changes in the VIX. The leverage factor can range from 1.5% to 3x. For example, if VIX futures rise 1% on a given day, a 1.5% bull ETF linked to VIX futures should rise 1.5%. On the other hand, if VIX futures fall 1%, this same fund should decline by 1.5%. To achieve their objectives, leveraged volatility mutual funds and ETFs 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, leveraged funds may not produce the same result if held for weeks, months or longer. In fact, it’s quite possible that a leveraged fund may fall in value over a longer period, even if the underlying market rises.
Accordingly, leveraged 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