ProShares Short VIX Short-Term Futures ETF

SVXY

Market cap $235M

SVXY is a high-risk ETF designed to deliver -0.5x the daily performance of the S&P 500 VIX Short-Term Futures Index. Current low market volatility makes it an inopportune time to bet on further volatility declines, so I rate SVXY as a Hold. Understanding when to go long or short volatility is crucial, especially in markets with overvalued stocks and sentiment-driven pricing.

VIX-related ETFs offer asymmetric return potential, especially with current volatility levels well below historical averages, making long-VIX trades attractive now. Recent market calm masks significant geopolitical and economic risks, including unresolved trade tensions and the outsized influence of AI-driven stocks. The VIX's current low percentile suggests markets are underpricing uncertainty, despite ongoing global instability and unpredictable policy moves.

The ProShares Short VIX Short-Term Futures ETF has performed well, since we upgraded our rating from "Hold" to "Strong Buy" on 9 April. The SVXY has gained by around 11.9% while the Cboe Volatility Index has dropped by around -30.0% over the same period (based on prices at the time of publication). Given the increasing risks of a highly volatile equity environment, we think the potential reward for shorting volatility no longer adequately compensates for the risk of another spike on the VIX.

With the VIX currently at 52.33 points, we think short volatility strategies are starting to look compelling. Short VIX strategies capitalize on the VIX's reliable pattern of reverting to the mean following a spike.

Volatility refers to the extent of price fluctuations for a given asset or market. Historically, volatility has been inversely correlated with the stock market.

ProShares Short VIX Short-Term Futures ETF benefits from falling volatility; post-election VIX normalization makes it less attractive, prompting a 'Sell' rating to take profit. SVXY is not suitable for buy and hold due to potential significant drawdowns from sudden volatility spikes. The fund should be bought when VIX spikes due to external events and sold after volatility subsides.

Volatility ETFs stood out over the last week amid the big market sell-off. Volatility spiked considerably as a wave of selling spread from Japan.

SVXY experienced a -40% drawdown following a spike in the VIX on August 5, 2024. The ETF aims to provide a -0.5x return against the S&P 500 VIX Short-Term Futures Index. SVXY performs well in calm markets and normal bear markets, but experiences losses during sudden spikes in volatility.

U.S. investors looking for positive returns had few options on Monday. Stocks tumbled while Treasury bond prices pared early gains.

ProShares Short VIX Short-Term Futures ETF (SVXY) offers 0.5x exposure to shorting VIX futures, making it a unique "leveraged" ETF. SVXY has outperformed the highly popular Simplify Volatility Premium ETF (SVOL) and the overall market in the last 3 years. SVXY behaves differently in extreme cases, such as during the market drop in March 2020, but has performed well overall.