Trading the VIX Futures Roll Using Exchange-Traded Funds

Abstract

This article examines the use of exchange-traded funds (ETFs) in the implied volatility market. Because the Volatility Index (VIX) cannot be directly traded and the VIX futures market is accessible only to institutional investors, the authors develop and analyze how individual investors can employ a VIX-based strategy using ETFs. They test a trading strategy using the ProShares VIXY and SVXY ETFs and compare the performance to a similar strategy using VIX futures and the S&P 500. They select these two ETFs because they can directly compare a long or short trading strategy using VIX futures. While the ETF trading strategies produce excess returns, these returns come with significant downside volatility.