These 3 Volatility ETFs Look Poised For A Rebound As VIX Hits Record Lows

With volatility dropping to multi-year lows, volatility-linked ETFs such as the ProShares VIX Short-Term Futures ETF VIXY, iPath Series B S&P 500 VIX Short-Term Futures ETN VXX, and ProShares Ultra VIX Short-Term Futures ETF UVXY are starting to appear increasingly appealing to traders who are gearing up for a market mood swing.

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These ETFs are created to appreciate as the CBOE Volatility Index (VIX) rises, particularly after a deep drop. Here’s their comparison:

ProShares VIX Short-Term Futures ETF

What it does: Tracks short-term VIX futures contracts.

Why it matters now: The VIX has plummeted more than 65% since peaking in early April, leaving room for big upside potential if market jitters return.

Caveat: VIXY is exposed to futures decay and is best employed for short-term tactical trades rather than long-term holdings.

iPath Series B S&P 500 VIX Short-Term Futures ETN

What it does: Provides similar exposure to VIX futures, but in the form of a debt-backed ETN.

Appeal: Generally has cleaner tracking to the VIX index because of its structure.

Downside: Has the same roll costs as VIXY and involves issuer risk on Barclays.

ProShares Ultra VIX Short-Term Futures ETF

What it does: Offers 1.5x leveraged exposure to short-term VIX futures.

Why it’s compelling: UVXY can experience disproportionate gains if volatility snaps back, perfect for short durations of fear-driven trade.

High risk: Not for the faint of heart, daily resetting and futures decay can burn capital fast in dull or quiet markets.

Calm Now, Chaos Later?

The attractiveness of these ETFs is increasing as markets move into what looks like a volatility void. The VIX just posted its sharpest drop on record, as the S&P 500 quietly crossed the 6,000 mark—brushing off rate anxiety and geopolitical tensions.

But this unsettling quiet has historically preceded chaos. Recall late 2017, when a sleepy VIX concealed risks responsible for the “Volmageddon” spike of 2018. And today, the same signs are simmering in the background:

Flattened skew in the options market suggests lower demand for protection against downward moves.

VVIX (VIX volatility) is still high, pointing to underlying hedging activity by institutions.

In short, the headline fear index might be sleeping, but shrewd money is creeping out to purchase crash insurance.

The Bottom Line

With the VIX trading at levels lower than their long-term averages, and complacency apparently baked into equity markets, the buying point on volatility-linked ETFs might be too good to pass up. VIXY, VXX, and UVXY present varying tools for those looking to position themselves for a possible volatility spike, whether it is macro shocks, earnings miss, or simply good old-fashioned mean reversion.

As the market hums along in a notably unblemished rhythm, it could be the moment to inject some static strategy, just in case the music does stop.

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Image created using artificial intelligence via Midjourney.