What VIX ETFs Tell Us About Investors

Includes: TVIX, VIXY, VXX
by: Tom Lydon

With investors no longer expecting an immediate stock market implosion, exchange traded funds tied to the CBOE Volatility Index, or "VIX," have plunged and are now reflecting the complacency in the marketplace.

The iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX), the largest VIX-related fund, is trading at its all time lows. VXX was down 2.0% Monday, trading around $11.20 per share. The ProShares VIX Short-Term Futures ETF (NYSEARCA:VIXY) was down 1.9%.

The VelocityShares Daily 2x VIX Short-tern ETN (NASDAQ:TVIX), which was under the spotlight earlier this year when its premium to net asset value dropped suddenly, has dipped 85% below its 200-day exponential moving average. TVIX is now trading at a 12.3% premium to its net asset value.

U.S. stocks were weaker Monday coming off six days of gains in the broader market. Despite the decline in the equities markets, the VIX continued to drop, which suggests that investors were not concerned with the overall outlook.

The VIX was down 3.3% Monday, trading around 14.2, a five-month low. Under normal market conditions, the VIX typically trades within the 15 to 20 range, and the currently low value suggests greater complacency within the markets.

Richard Bloch for Seeking Alpha notes that VIX futures are currently trading in a contangoed market, with more than a 10 point spread between the August contracts and the March 2013 contracts.

VIX ETFs and ETNs hold futures contracts, and if the market is in contango - later dated contracts are costlier than the soon-to-expire contracts - then the funds would incur loses when rolling futures.

Max Chen contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.