Trading Volatility: At What Cost?

Posted: 7 May 2013

See all articles by Robert Whaley

Robert Whaley

Vanderbilt University - Finance

Date Written: May 6, 2013


Volatility trading is in vogue. Launched in January 2009, exchange-traded products (ETPs) linked to the CBOE Market Volatility Index (VIX) have enamored no small number of traders judging by the billions of dollars invested in these new products. Why exactly is unclear. The most popular VIX ETPs are not suitable buy-and-hold investments and are virtually guaranteed to lose money through time. Indeed, since product launch, ETPs linked to the S&P 500 VIX short-term futures indexes have chalked up losses of nearly $4 billion. Yet the market continues to grow. The purpose of this paper is to describe these products, explaining how and why they lose money.

Keywords: volatility trading, VIX ETPs, contango

JEL Classification: G10, G12, G13, G14

Suggested Citation

Whaley, Robert, Trading Volatility: At What Cost? (May 6, 2013). Available at SSRN: or

Robert Whaley (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-343-7747 (Phone)
615-376-8879 (Fax)

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