Volatility ETFs and ETNs

The advent of ETFs and ETNs linked to the S&P 500 VIX Futures Indices has broadened access to volatility trading. But there still remain significant misconceptions about the relationship of these products with spot VIX and the volatility term structure. In this article, the authors distinguish between portfolio hedge and distributional properties of these S&P 500 VIX futures index based instruments versus those of a theoretical position in spot VIX. They also demonstrate the impact of the term structure and quantify how it manifests itself in roll loss.