Exchange-traded products (ETPs) based on the CBOE Volatility Index (VIX) have become increasingly popular in 2016 as traders look for opportunities to profit from the continued turbulence in the market.
According to TABB Group, traders in the five largest ETPs exchanged 25.2 billion shares in the first half of 2016 and will likely exceed last year’s volume in these products by 86 per cent.
If that pace persists, the notional value traded in these volatility products will rise to USD946 billion in 2016, 26 per cent higher than 2015’s notional volume.
TABB Group’s latest research – Volatility ETPs: When Traders Cash in on Turbulence – analyses the current universe of volatility ETPs and why these products are gaining favour with traders.
TABB explains that even though volume in volatility ETPs has swelled over the past few years, trading in the products has exploded this year amid a resurgence of market turmoil and elevated VIX levels. The surge in interest for volatility trading has also produced an increase in volumes in VIX futures and options this year, with totals set to exceed previous record volumes.
However, as author Callie Bost details in the research, VIX options and futures are tailored more towards professional investors and volatility ETPs, which mostly hold VIX derivatives, provide both institutional and retail traders with an entry into long-volatility, short-volatility, and market-hedging strategies. Though the market is flooded with volatility ETPs, traders are still yearning for a more predictable product that can accurately track the VIX index.
“The booming popularity of volatility ETPs presents a wealth of opportunities for market participants,” Bost says. “These products will continue to be in the spotlight as market turbulence picks up on the heels of global economic turmoil and future global monetary policy decisions.”
