Demand has never been greater for an exchange-traded note that appreciates when U.S. stock volatility rises, pushed up by speculators after equities posted their best start to a year since 1991.
The market value of the VelocityShares Daily 2x VIX Short- Term ETN, which aims to produce twice the daily return of the Chicago Board Options Exchange Volatility Index, more than tripled this year to a record $514 million. Issued shares rose more than sixfold to 33.8 million between Dec. 30 and Feb. 7.
Stocks have gained in 2012 following better-than-estimated jobs data, driving down measures of equity volatility. Now, after the Standard & Poor’s 500 Index rallied 7.5 percent, investors are buying the ETN in case the advance fizzles and price swings surge, said Glenmede Trust Co.’s Sean Heron. The VelocityShares security rose 135 percent in August after S&P cut the U.S. government’s credit rating, roiling markets.
“It’s a convenient way to own volatility,” Heron, who manages options strategies at Philadelphia-based Glenmede, said yesterday in a phone interview. His firm oversees $20 billion. “People want to own the VIX, people want to be long volatility and protect their assets.”
Increasing use of exchange-traded VIX products has driven volume and open interest for its futures to new highs. The futures have an open interest of about 190,000 and reached a record 248,976 in June. That’s up from an average of 179,253 last year and 91,481 in 2010, data compiled by Bloomberg show.
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