VXX vs. VIX: Know the Difference
By Shumaila Saeed || Published on February 19, 2024
VXX is an exchange-traded note (ETN) that tracks short-term volatility, linked to the VIX Index, which measures market expectation of near-term volatility conveyed by S&P 500 stock index option prices.
Key Differences
VXX, or the iPath Series B S&P 500 VIX Short-Term Futures ETN, is a traded financial instrument designed to provide exposure to the S&P 500 VIX Short-Term Futures Index Total Return. It essentially tracks the performance of a daily rolling position in the first and second month VIX futures contracts. In contrast, the VIX, or the CBOE Volatility Index, is a real-time market index representing the market's expectations for volatility over the coming 30 days, inferred from the prices of S&P 500 index options.
Shumaila Saeed
Feb 19, 2024
The VXX is known for its utility in hedging against market downturns or capitalizing on increased market volatility, as it tends to rise when market volatility increases. However, due to its structure, it often faces decay over time, especially in calm markets. The VIX, on the other hand, does not have a tradable instrument directly associated with it. Instead, it serves as a benchmark index, providing investors and traders with a measure of market risk and sentiment.
Shumaila Saeed
Feb 19, 2024
One key distinction is that VXX, as an ETN, carries credit risk associated with its issuer, Barclays Bank PLC. This means that the performance of VXX is not only linked to the VIX futures but also to the creditworthiness of the issuing bank. The VIX itself, being an index, does not carry such a risk as it is not a tradable asset but a statistical measure.
Shumaila Saeed
Feb 19, 2024
The VXX is often used by traders for short-term trades or as part of a larger risk management strategy. Its value can fluctuate significantly over short periods, making it suitable for experienced traders. The VIX, meanwhile, is widely used as a "fear gauge" of the market, helping investors understand whether market stress is increasing or decreasing.
Shumaila Saeed
Feb 19, 2024
In terms of accessibility, VXX can be bought and sold like a stock through a brokerage account. This makes it accessible to a wide range of investors. The VIX, while not directly tradable, influences a variety of VIX-related financial products, including futures, options, and other ETNs, allowing investors to make decisions based on expected market volatility.
Shumaila Saeed
Feb 19, 2024
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Comparison Chart
Function
Tracks short-term volatility via VIX futures
Measures expected market volatility
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Feb 19, 2024
Tradable Directly
Yes, like a stock
No, but influences related financial products
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Feb 19, 2024
Risk Factors
Subject to decay, issuer credit risk
No credit risk, reflects market sentiment
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Feb 19, 2024
Usage in Investment Strategy
Used for hedging, short-term trading
Used as a benchmark for market volatility
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Feb 19, 2024
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VXX and VIX Definitions
VXX
VXX provides exposure to volatility without needing a futures account.
Trading VXX is simpler for me than dealing directly with futures.
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Jan 24, 2024
VIX
VIX influences the pricing of VIX-related derivatives and products.
Futures contracts on the VIX are popular among professional traders.
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Jan 24, 2024
VXX
VXX tends to rise in value during periods of increased market volatility.
During the market crash, my VXX investment significantly increased in value.
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Jan 24, 2024
VIX
VIX is calculated from S&P 500 index options' prices.
The VIX jumped today, suggesting traders expect more market swings.
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Jan 24, 2024
VXX
VXX carries credit risk related to its issuer, Barclays Bank.
When assessing VXX, I also consider the creditworthiness of Barclays.
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Jan 24, 2024
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VIX
VIX is a real-time index representing expected market volatility.
A rising VIX indicates increasing fear in the stock market.
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Jan 24, 2024
VXX
VXX is subject to time decay, making it less suitable for long-term holdings.
I avoid holding VXX for long durations due to its inherent time decay.
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Jan 24, 2024
VIX
VIX is not directly tradable, but it impacts various financial instruments.
Although I can't trade VIX directly, I use it to inform my trading strategy.
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Jan 24, 2024
VXX
VXX is an ETN that tracks the S&P 500 VIX Short-Term Futures Index.
Investors often buy VXX to hedge against short-term market volatility.
Shumaila Saeed
Jan 24, 2024
VIX
VIX is often referred to as the stock market's "fear gauge."
I monitor the VIX to gauge the overall anxiety level of the market.
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Jan 24, 2024
Repeatedly Asked Queries
What does VIX represent?
VIX is the CBOE Volatility Index, reflecting market expectations of near-term volatility.
Shumaila Saeed
Feb 19, 2024
How does VIX affect the stock market?
VIX is a measure of market sentiment; higher VIX levels suggest higher market anxiety.
Shumaila Saeed
Feb 19, 2024
What are the risks of investing in VXX?
Risks include time decay and issuer (Barclays Bank) credit risk.
Shumaila Saeed
Feb 19, 2024
Can I directly invest in VIX?
No, VIX is an index; you can't invest directly but can use VIX-related financial products.
Shumaila Saeed
Feb 19, 2024
What is VXX?
VXX is an exchange-traded note that tracks the S&P 500 VIX Short-Term Futures Index.
Shumaila Saeed
Feb 19, 2024
Is VXX a good long-term investment?
VXX is generally not ideal for long-term investment due to decay over time.
Shumaila Saeed
Feb 19, 2024
How do investors use VIX?
Investors use VIX as a market temperature gauge to assess risk and make trading decisions.
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Feb 19, 2024
How is the VIX calculated?
VIX is calculated from the implied volatilities of S&P 500 index options.
Shumaila Saeed
Feb 19, 2024
Is VXX a stock or a bond?
VXX is an exchange-traded note (ETN), similar to a bond but traded like a stock.
Shumaila Saeed
Feb 19, 2024
What does a high VIX indicate?
A high VIX indicates increased market volatility and investor uncertainty.
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Feb 19, 2024
Does VIX directly affect stock prices?
VIX doesn't directly affect stock prices but reflects the market's volatility expectations.
Shumaila Saeed
Feb 19, 2024
Is VXX suitable for beginner investors?
VXX can be complex and risky, so it's generally not recommended for beginners.
Shumaila Saeed
Feb 19, 2024
Can VXX be used to hedge against market downturns?
Yes, VXX often rises in value during market downturns and can be used as a hedge.
Shumaila Saeed
Feb 19, 2024
Does VXX always go up when the market goes down?
Not always, but VXX tends to increase in value during significant market downturns.
Shumaila Saeed
Feb 19, 2024
Is VXX affected by changes in interest rates?
VXX can be indirectly affected, as interest rates influence overall market volatility.
Shumaila Saeed
Feb 19, 2024
Can VXX be shorted?
Yes, VXX can be shorted like a stock, suitable for betting against market volatility.
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Feb 19, 2024
What is the ideal holding period for VXX?
VXX is typically held short-term due to its sensitivity to daily market volatility.
Shumaila Saeed
Feb 19, 2024
Is VIX a reliable indicator of market crashes?
VIX can indicate increased fear or uncertainty, often preceding market downturns.
Shumaila Saeed
Feb 19, 2024
What time frame does VIX cover?
VIX reflects expected volatility over a near-term 30-day period.
Shumaila Saeed
Feb 19, 2024
How can I trade based on VIX movements?
You can trade VIX futures, options, or VIX-related ETNs like VXX.
Shumaila Saeed
Feb 19, 2024
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About Author
Written by
Shumaila SaeedShumaila Saeed, an expert content creator with 6 years of experience, specializes in distilling complex topics into easily digestible comparisons, shining a light on the nuances that both inform and educate readers with clarity and accuracy.
Shumaila Saeed
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