Most Volatile ETFs Explained and How to Invest

Investing in volatile ETFs can be a thrilling yet intimidating experience, especially for beginners. The ProShares UltraPro Short QQQ ETF (SQQQ) is one of the most volatile ETFs out there, with a 3-year standard deviation of 132.45%.

To put this into perspective, the S&P 500 has a 3-year standard deviation of around 16%. This means that the SQQQ can potentially move 8 times more than the overall market, making it a high-risk, high-reward investment.

If you're considering investing in volatile ETFs, it's essential to understand the risks involved. The Direxion Daily Small Cap Bull 3X Shares ETF (TNA) has a 3-year standard deviation of 103.59%, which is still significantly higher than the S&P 500.

The key to investing in volatile ETFs is to have a solid understanding of the underlying assets and to set clear risk management strategies in place.

For day trading, a simple ETF/ETN with high volume is usually the best choice. The iPath S&P 500 VIX Short-Term Futures ETN (VXX) is the largest and most liquid in the volatility ETF/ETN universe.

The VXX ETN is based on the VIX, which reflects investors' expectations about the short-term direction of the S&P 500. The VXX ETN provides exposure to S&P 500 VIX Short-Term Futures Index Total Return, but holders have no principal protection and own unsecured debt of the company sponsoring the notes, Barclays Bank.

The VXX ETN has a tendency for explosive moves when the S&P 500 declines, often far exceeding the movement seen in the S&P 500. In fact, a 5% drop in the S&P 500 may result in a 15% gain in VXX.

To trade VXX effectively, buy it when the S&P 500 is declining, and short it following a price spike, once the S&P 500 begins to rally higher again, and VXX is falling. Favorable trading conditions in VXX can last for several days or up to several months, depending on the size of the trend in the S&P 500.

Here are some key stats to keep in mind:

VXZ is another ETN that's worth mentioning. It tracks the S&P 500 VIX Mid-Term Futures Index Total Return.

The issuer of VXZ is Barclays Bank, and it's structured as an ETN, which means holders have no principal protection and own unsecured debt of the issuer.

VXZ has a YTD return of -2.5 percent.

Its 5-year returns are quite low, coming in at an annualized -5.0 percent.

The expense ratio for VXZ is 0.89 percent.

Here's a quick comparison of VXZ's returns:

It's worth noting that VXZ's expense ratio is lower than some other ETNs in the same space.

The VXX ETN is based on the VIX—the Chicago Board Options Exchange Volatility Index, which reflects investors' expectations about the short-term direction of the S&P 500.

The VIX assesses current prices for put and call options tied to the S&P 500 index, producing an educated guess about how much the index is likely to move over the next 30 days.

This makes the VXX ETN a popular choice for traders who want to profit from bets on volatility in the market.

The VXX ETN is not a direct investment in the S&P 500 index, but rather a way to speculate on the expected volatility of the market.

Day trading VXX can be a lucrative endeavor, but it requires a solid understanding of its behavior. VXX tends to experience explosive moves when the S&P 500 declines, often far exceeding the movement seen in the S&P 500.

For example, a 5% drop in the S&P 500 may result in a 15% gain in VXX. This makes trading VXX a more attractive option than simply shorting the SPDR S&P 500 ETF Trust (SPY).

To day trade VXX effectively, you should buy VXX when the S&P 500 is declining and short VXX following a price spike, once the S&P 500 begins to rally higher again, and VXX is falling.

Favorable trading conditions in VXX can last for several days or up to several months, depending on the size of the trend in the S&P 500. The charts below show a short-term decline and reversal in the S&P 500 and the corresponding rally and selloff in VXX.

Here are the key trading strategies to keep in mind:

Keep in mind that VXX will decline slowly when the S&P 500 is in a quiet uptrend with little downside movement. These times are not ideal for day trading.

VXX can often lead the S&P 500 Index, providing a valuable signal for traders.

This means that if VXX is weaker in the morning, moving lower overall even when the S&P 500 makes a lower low, it's a clue that the S&P 500 might move higher.

The charts show that VXX broke its major support level just after 12 p.m., indicating that the S&P 500 could eventually break through its resistance level.

It's worth noting that VXX won't always lead the S&P 500, and sometimes the S&P 500 will lead, which can also provide clues for day trading VXX.

In the example provided, VXX broke its major support level about 30 minutes before the S&P 500 broke through its resistance level, highlighting the potential for VXX to signal a change in market direction.

The iPath VXX S&P 500 VIX Short-Term Futures ETN is a popular investment product that provides exposure to the S&P 500 VIX Short-Term Futures Index Total Return.

The ETN is sponsored by Barclays Bank and has no principal protection, meaning holders own unsecured debt of the company.

The VXX ETN typically experiences explosive moves when the S&P 500 declines, far exceeding the movement seen in the S&P 500. For example, a 5% drop in the S&P 500 may result in a 15% gain in VXX.

You can buy VXX when the S&P 500 is declining, and short VXX following a price spike, once the S&P 500 begins to rally higher again.

The VXX ETN has a tendency for big moves, with a 105% rally based on an 11.84% decline in the S&P 500, and a 31.6% fall when the S&P 500 bounced 10% off the low.

Here are some key statistics about the VXX ETN:

The VXX ETN is based on the VIX, which reflects investors' expectations about the short-term direction of the S&P 500 by assessing current prices for put and call options tied to the widely followed index.

The iPath S&P 500 VIX Short-Term Futures ETN (VXX) is the largest and most liquid in the volatility ETF/ETN universe, making it a popular choice for day trading.

This ETN provides exposure to S&P 500 VIX Short-Term Futures Index Total Return, but keep in mind that holders have no principal protection and own unsecured debt of the company sponsoring the notes, Barclays Bank.

If you're considering investing in the VXX, be aware that its YTD return is -18.9 percent and 5-year returns (annualized) are -50.1 percent, which may not be ideal for long-term investments.

Here are some key statistics about the VXX:

Investing in Energy ETFs can be a smart move, especially with crude oil surging.

The energy sector is experiencing a surge, making it an attractive option for investors.

If you're considering investing in energy ETFs, you might want to take a closer look at the performance of stocks like Occidental Petroleum Corp. (OXY), which has seen a 1.62% increase in its stock price.

The Volatility Shares S&P 500 High Volatility Index ETF is a new ETF that's been filed with the SEC, aiming to take advantage of market volatility.

Another energy company, Diamondback Energy Inc. (FANG), has seen a slight decrease in its stock price, down 0.15%.

Here are some key energy stocks to consider:

Investing in energy ETFs can be a great way to diversify your portfolio and potentially ride the wave of market volatility.

When choosing a volatility ETF, it's essential to consider the type of investment you're looking for.

There are various volatility exchange-traded funds to pick from, including inverse volatility ETFs.

Inverse volatility ETFs move in the same direction as major stock market indexes, making them a great option for traders who want to capitalize on market downturns.

The iPath S&P 500 VIX Short-Term Futures ETN (VXX) is the largest and most liquid volatility ETF, making it a great choice for day traders who need high volume.

The ProShares VIX Mid-Term Futures ETF (VIXM) tracks a collection of futures contracts with a weighted average expiration of five months, providing a unique investment opportunity.

A simple ETF with high volume, like VXX, is usually the best choice for day trading, as it allows for quick and easy trades.

ETFs can be a great way to invest in volatility, but it's essential to understand the pros and cons before diving in. Volatility ETFs provide different exposures to the market, in terms of time frame (short and medium term), whether they perform inversely to what they’re tracking and whether they take a leveraged approach to magnify gains.

The investment track record of a volatility ETF is crucial to consider. You'll want to know the track record of the ETF, as it can give you some idea of what to expect from the ETF. However, volatility ETFs are designed to perform well only over short periods, so in many cases long-term returns look awful.

One significant con of volatility ETFs is their expense ratio. Pay attention to the expense ratio, which tells you how much it costs to own the fund annually as a percent of your total investment in it. This can eat into your returns and make it harder to achieve your investment goals.

Here are some key things to consider when investing in a volatility ETF:

It's essential to weigh the pros and cons of volatility ETFs before investing. While they can be a great way to make a short-term bet on the direction of the market, their value tends to decay over time.

Identifying entry points in volatility ETFs like VXX is crucial for day traders. A significant drop in the S&P 500 can create a buying opportunity in VXX.

The biggest intraday opportunities occur when there's a significant drop in the S&P 500, and VXX is well below its high. At 10:43 a.m., the S&P 500 made a lower low and then started to rally, while VXX was forming a sideways channel.

Look for a lower low in VXX, indicating weakness, and a rally in the S&P 500, which can signal a potential drop in VXX. This was the case when the S&P 500 started to rally after making a lower low.

If the S&P 500 is rallying, VXX is likely to start dropping soon. Keep an eye on VXX's price action, especially when it's forming a sideways channel like it did at 10:43 a.m.

T-Rex 2X Long NVIDIA Daily Target ETF (NVDX) and GraniteShares 2x Long NVDA Daily ETF (NVDL) have earned eye-popping returns of 330% and 290% in 2024, respectively.

These impressive gains have caught investors' attention, with assets in NVDL soaring to $5 billion from around $200 million at the start of the year.

NVDL charges 1.15% in fees, and its success has inspired other issuers to try their luck with similar products.

As Balchunas noted, "It has become a massive magnet for all kinds of experimental products to be launched."

Investors should be aware that a wrong-way bet can be extra painful, as three inverse Nvidia funds top the list of worst performers, with losses of more than 70% each.

The T-Rex 2X Inverse NVIDIA Daily Target ETF (NVDQ) is down 90% this year, the worst record for a US ETF in the entire 3,600-fund universe.

The ProShares Short VIX Short-Term Futures ETF (SVXY) is a unique investment option that aims to provide daily results that are one-half the inverse of the daily performance of the S&P 500 VIX Short-Term Futures Index.

This ETF has a relatively high expense ratio of 0.95 percent, which is something to consider when evaluating its overall cost.

One of the key takeaways from SVXY's past performance is its significant annualized return of 12.9 percent over the past five years.

However, it's also worth noting that the fund has experienced a significant decline in the past year, with a YTD return of -3.8 percent.

Here's a brief summary of SVXY's key metrics:

Investing in the most volatile ETFs can be a thrilling but treacherous ride, with potential returns that can either skyrocket or plummet.

The 3x Inverse NASDAQ 100 ETF has a 3-year standard deviation of 104.6%, significantly higher than the S&P 500's 15.4%. This means its value can fluctuate wildly over time.

Investors seeking high returns often take on more risk, and the 3x Inverse NASDAQ 100 ETF's 3-year average annual return of 34.6% is a prime example of this.

Day trading volatility exchange-traded funds can be attractive when markets are volatile.

An ETF is an exchange-traded fund that holds the underlying assets of an index, providing a diversified investment portfolio.

An ETN, on the other hand, is an exchange-traded note that does not hold any assets and is structured as a debt security.

VXX, a volatility ETN, will often lead the S&P 500, signaling whether to be long or short.

A stop-loss order placed at $0.02 above the most recent high can protect a short position.

To determine a target for a trade, aim to make a profit that is two times your risk.

The one-year daily total return of the iPath S&P 500 VIX Short-Term Futures ETN was a staggering -69.91% as of January 16, 2024. This is a stark reminder that even the most seemingly safe investments can take a hit.

The iPath S&P 500 VIX Short-Term Futures ETN is an example of an investment that's designed to track the market's volatility. Its one-year performance is a stark contrast to the gains of other investments.

Investors who put their money into the iPath S&P 500 VIX Short-Term Futures ETN in January 2023 would have seen a significant decline in their investment by January 2024. The -69.91% return is a hard pill to swallow.

It's essential to remember that past performance is not a guarantee of future success. However, it's a crucial factor to consider when evaluating the risks and returns of an investment.