Volatility ETFs Surge After Disappointing Jobs Report
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A weaker-than-expected jobs report caused huge moves in stock and bond markets on Friday. The surge in volatility was reflected in the Cboe Volatility Index (VIX), sometimes dubbed Wall Street’s “fear gauge.”
The VIX topped 28 midday, its highest level since October 2022. The index has averaged 14 this year, reflecting the relatively stable financial and economic conditions seen for much of 2024.
However, economic slowdown fears accelerated this week following the release of a pair of downbeat economic reports on manufacturing and jobs.
The $303 million Barclays iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX), which tracks VIX futures contracts, surged as much as 25% on Friday as investors fretted that the latest jobs report was a harbinger of an economic slowdown, potentially even a recession.
What Is the VIX?
The VIX doesn't measure actual, realized volatility. It measures what is known as implied volatility, which is calculated based on the price of near-term S&P 500 Index options, or those with 23 to 37 days until expiration.
When stocks gyrate wildly, options contracts—which allow investors to buy or sell at predetermined prices—tend to cost more.
Unfortunately, the VIX itself―also known as spot VIX―is un-investable: There's no way to buy or sell the popular gauge, because the underlying portfolio of options that the index measures is constantly changing. However, there are financial products closely tied to movements in the index.
VIX futures contracts allow traders to bet on what value the index will be at some date in the future, and it’s through these contracts that VXX and other VIX ETFs get their exposure to the index.
VXX tracks the S&P 500 VIX Short-Term Futures Index, which “offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants’ views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index.”
For a full list of volatility ETFs, check out etf.com’s Volatility ETFs Topics Page.