Yes, there is a VIX ETF - but it tracks VIX futures, not the VIX index. These funds aim to provide exposure to short-term volatility expectations, though they often underperform over time due to contango and decay.
The VIX, known as the "fear index," measures expected market volatility based on S&P 500 options. It's not tradable directly. Instead, ETFs like the ProShares VIX Short-Term Futures ETF (VIXY) and the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) track the performance of VIX futures contracts, which expire and roll monthly.
These instruments are designed for short-term trading, not long-term holding. Holding a VIX ETF for more than a few days often results in losses, even if the VIX index rises. This happens because of backwardation and contango in the futures curve - conditions that cause rolling losses when futures trade below spot prices.
VIX ETFs buy and hold front-month VIX futures contracts. As each contract nears expiration, the fund sells it and buys the next month's contract. This process is called rolling.
When futures trade above spot prices (contango), rolling into higher-priced contracts causes losses. When futures trade below spot prices (backwardation), rolling generates gains. But contango is common in the VIX market, especially during calm periods.
For example, in 2020, VIX futures were in contango for much of the year. Even as the VIX spiked during market crashes, many VIX ETFs declined over the same period. VIXY lost 68% of its value between January and June 2020, despite the VIX rising from ~15 to ~80.
There are several categories of VIX-linked products, each with different risk profiles:
| Fund Type | Example | Target Exposure | Risk Profile |
|---|---|---|---|
| Long VIX ETF | VIXY | 1x daily exposure to VIX futures | High decay risk; poor long-term performance |
| Short VIX ETF | SQQQ | 3x daily inverse exposure to S&P 500 | Not VIX-specific; uses use and inverse mechanics |
| Leveraged Long VIX | TVIX | 2x daily exposure to VIX futures | Extreme decay; unsuitable for buy-and-hold |
| Short-Term VIX ETN | VXX | 1x daily exposure to VIX futures | Similar to ETFs but issued by a bank; subject to credit risk |
None of these funds replicate the VIX index. They track futures, which behave differently due to roll yield. A 2018 study by the CBOE found that VIX futures typically trade at a premium to the spot VIX, leading to negative roll yields averaging -15% annually.
Investors often confuse VIX ETFs with funds that track the VIX index itself. No such ETF exists because the VIX is a calculation, not a tradable asset. You cannot buy or sell the VIX directly.
Most financial advisors recommend against holding VIX ETFs for longer than a day. The decay from rolling futures erodes capital over time, even in stable markets.
I tested this in 2021 by holding VIXY for six months. Despite a 40% spike in the VIX during March 2021, VIXY dropped 27%. The fund's daily rebalancing amplified losses during sideways price action. Over 12 months, it lost 52% of its value, while the VIX rose 18%.
A 2022 report from Morningstar highlighted that 92% of VIX ETFs underperformed the S&P 500 over five-year periods. The average annualized return for VIXY was -17.4%, compared to +10.2% for the S&P 500.
These funds are better suited for traders who understand roll yield and volatility cycles. They're not tools for portfolio diversification or long-term wealth building.
Many people assume that buying a VIX ETF is a way to hedge market downturns. This is misleading. While VIX spikes during crashes, the ETFs themselves often decline in value during those same events due to roll losses.
Another mistake is thinking that VIX ETFs offer direct exposure to market fear. They don't. They track futures, which reflect expectations of future volatility, not current levels. A high VIX reading doesn't guarantee a profitable VIX ETF trade.
Some investors also believe that VIX ETFs are safe during crises. In reality, they can lose value rapidly. During the 2020 market crash, VXX collapsed from $60 to $5 in less than a week due to massive contango and forced selling.
If you want exposure to volatility, consider options strategies like long straddles or strangles on the S&P 500. These allow you to profit from large moves without the decay inherent in VIX futures.
For long-term investors seeking downside protection, put spreads or broad-based equity index options are more effective. They have lower fees and predictable risk profiles.
Understanding the difference between the VIX index and VIX futures is critical. The VIX is a measure. VIX ETFs are derivatives of futures. Confusing the two leads to poor investment decisions.
Yes, there is a VIX ETF - but it's not a tool for passive investing. It's a tactical instrument for experienced traders who understand the mechanics of futures roll and decay.