With the Chicago Board Options Exchange Volatility Index, better known as the VIX Index, nearing year-to-date highs we would expect short selling in VIX related ETFâ€™s and ETNâ€™s to not only be active, but also trend significantly upwards as traders and portfolio managers sell volatility. While we are seeing a slight bump up of VXX ETF short selling over the last several days, we are not seeing the increase in short selling in the remaining eight actively shorted VIX ETFâ€™s\ETNâ€™s that we observed at the start of both 2018 vol spikes.
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Barclayâ€™s iPath S&P 500 VIX Short Term ETN (VXX) and iPath S&P 500 VIX Medium Term ETN (VXZ) are scheduled to mature after a volatile 10 year run with a final redemption date of January 30, 2019. ETNâ€™s differ from ETFs as they are basically debt instruments with set maturity dates when the instrument expires and its â€śprincipalâ€ť or NAV is redistributed back to the long note holders versus an ETF which is a portfolio of assets with no defined maturity date.
With the S&P 500 index down 8.76% in October we would expect the CBOE Volatility Index (VIX) to increase dramatically, and it didnâ€™t disappoint, rising 75.17%.
Trading in the â€śFear Index,â€ť which measures the implied volatility of near term S&P 500 option premiums, can be done via futures, options or ETPs. The most popular VIX ETP being the iPath S&P 500 VIX Short Term Futures ETN (VXX) with a market cap of $929 million and short interest of $1.62 billion.
As markets and sectors declined, the use of ETFs as hedges increased substantially in October with ETF short interest increasing by $11.7 billion, to $176.5 billion, a 7.1% increase in size. There is a large concentration of short interest in a handful of ETFs, with the top twenty-five most shorted ETFs making up 75% of total short interest or $131.8 billion. Total short interest in these top twenty-five ETFs grew by $12.1 billion over the last month.