Did Volatility ETFs Drive the Market’s Selloff?
Rising U.S. Treasury yields were widely cited as the spark that ignited early February's sharp selloff in stocks. But the real damage, in my view, was caused by a handful of arcane exchange-traded funds and other products that let traders place giant wagers on the direction of the CBOE Volatility Index, known by its symbol VIX and often called the “fear index.” The good news: The selloff already may be finished. But regardless of whether it’s behind us, you certainly should stay away from these dangerous volatility ETFs.
The stock market’s volatility had been incredibly low the past two years as the market ambled placidly higher. Traders placed bets that the low volatility would continue. These bets were incredibly profitable.