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Market Fears Brexit: Volatility ETFs Take Full Advantage
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The start of this week has been chaotic for the global stock market with volatility levels skyrocketing. While meetings at central banks like the Fed or BoJ are leading to fluctuations in the market, it is the ‘Brexit’ referendum scheduled for June 23 that is upsetting stock movement most of all.
The latest opinion polls that pointed to higher chances of Britain leaving the European Union (EU) unnerved the investing world. The most recent opinion polls revealed a 7-point lead of ‘Leave’ over ‘Remain’ as per Reuters. Brexit fears are sure to unsettle the market momentum as it has sweeping impacts on the global economy (read: High Quality Dividend Stocks & ETFs for Uncertain Markets).
Brexit: Pros and Cons
Post Brexit, Britain will be able to set its own trade agreements with the rest of the world, but will lose the benefits of free trade within the EU countries. Since the EU shares an intense trade relation with Britain, the levy of new trade barriers may hurt the country’s economy.
Post break-up, Britain will get rid of the sensitive immigrant issue. At the current level, the UK has no control over accepting migrants as citizens of EU members have the permission to reside in any member country. Britain is incurring a net £3 million in cost every day due to surging EU migration. However, there is a report which says that EU immigrants added more to the UK economy in the form of tax payments than they received in public benefits.
Britain will save a considerable amount that it shells out as membership fee if it cuts ties with the EU. Also, Britain will no longer have to bear the brunt of EU’s debt crisis related hazards (read: British ETFs in Focus as Brexit Debate Flares Up).
Then again, some are of the view that Brexit would hit the low-income strata as lower national income would result in reduction of the welfare budget. Also, waning trade relations with the EU will hurt the country’s job market.
Moreover, Euro zone economies will be hit hard if it is a Yes in the Brexit vote. So, present developments across the pond are keeping investors edgy right now, shooting the levels of volatility higher (read: Safe Haven ETFs Surge on Brexit Fears).
Volatility Index Flying High
As the market faltered, exchange-traded products designed to track market volatility received a shot in the arm. Volatility level is best represented by the CBOE Volatility Index (VIX), which tracks the implied volatility of the S&P 500 stock index. This fear gauge measures investors’ perception of market risk and tends to rise during a downtrendor when investor panic starts to set in.
Investors should note that the volatility index climbed over 23% on June 13 itself. The index is now at its three-month high and registered the sixth successive increase on June 13 – a situation not experienced since the China-led market crash last August, as per CNBC.
Opportune Moment for Volatility Exchange-Traded Products?
The present situation suggests that risks are rising and are here to say for some more days. Investors could definitely benefit from this trend. There are several ETF/ETN options available in the market that can provide some exposure to volatility. These products have proven themselves as short-time winners in chaotic times.
Below we have highlighted short-term volatility products that will likely take advantage of the ongoing Brexit debate. As a caveat, investors should note that these products are meant only for short-term trading (see: all the Volatility ETFs here):
A popular ETN option providing exposure to volatility is iPath S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) . There are other products like ProShares VIX Short-Term Futures ETF (VIXY - Free Report) and VelocityShares Daily Long VIX Short-Term ETN (). VXX, VIXY and VIIX were up 32.8%, 32.9% and 31.2% in the last five trading sessions (as of June 13, 2016).
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Market Fears Brexit: Volatility ETFs Take Full Advantage
The start of this week has been chaotic for the global stock market with volatility levels skyrocketing. While meetings at central banks like the Fed or BoJ are leading to fluctuations in the market, it is the ‘Brexit’ referendum scheduled for June 23 that is upsetting stock movement most of all.
The latest opinion polls that pointed to higher chances of Britain leaving the European Union (EU) unnerved the investing world. The most recent opinion polls revealed a 7-point lead of ‘Leave’ over ‘Remain’ as per Reuters. Brexit fears are sure to unsettle the market momentum as it has sweeping impacts on the global economy (read: High Quality Dividend Stocks & ETFs for Uncertain Markets).
Brexit: Pros and Cons
Post Brexit, Britain will be able to set its own trade agreements with the rest of the world, but will lose the benefits of free trade within the EU countries. Since the EU shares an intense trade relation with Britain, the levy of new trade barriers may hurt the country’s economy.
Post break-up, Britain will get rid of the sensitive immigrant issue. At the current level, the UK has no control over accepting migrants as citizens of EU members have the permission to reside in any member country. Britain is incurring a net £3 million in cost every day due to surging EU migration. However, there is a report which says that EU immigrants added more to the UK economy in the form of tax payments than they received in public benefits.
Britain will save a considerable amount that it shells out as membership fee if it cuts ties with the EU. Also, Britain will no longer have to bear the brunt of EU’s debt crisis related hazards (read: British ETFs in Focus as Brexit Debate Flares Up).
Then again, some are of the view that Brexit would hit the low-income strata as lower national income would result in reduction of the welfare budget. Also, waning trade relations with the EU will hurt the country’s job market.
Moreover, Euro zone economies will be hit hard if it is a Yes in the Brexit vote. So, present developments across the pond are keeping investors edgy right now, shooting the levels of volatility higher (read: Safe Haven ETFs Surge on Brexit Fears).
Volatility Index Flying High
As the market faltered, exchange-traded products designed to track market volatility received a shot in the arm. Volatility level is best represented by the CBOE Volatility Index (VIX), which tracks the implied volatility of the S&P 500 stock index. This fear gauge measures investors’ perception of market risk and tends to rise during a downtrendor when investor panic starts to set in.
Investors should note that the volatility index climbed over 23% on June 13 itself. The index is now at its three-month high and registered the sixth successive increase on June 13 – a situation not experienced since the China-led market crash last August, as per CNBC.
Opportune Moment for Volatility Exchange-Traded Products?
The present situation suggests that risks are rising and are here to say for some more days. Investors could definitely benefit from this trend. There are several ETF/ETN options available in the market that can provide some exposure to volatility. These products have proven themselves as short-time winners in chaotic times.
Below we have highlighted short-term volatility products that will likely take advantage of the ongoing Brexit debate. As a caveat, investors should note that these products are meant only for short-term trading (see: all the Volatility ETFs here):
A popular ETN option providing exposure to volatility is iPath S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) . There are other products like ProShares VIX Short-Term Futures ETF (VIXY - Free Report) and VelocityShares Daily Long VIX Short-Term ETN (). VXX, VIXY and VIIX were up 32.8%, 32.9% and 31.2% in the last five trading sessions (as of June 13, 2016).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>