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Risky Volatility Funds Set to Make a Comeback

edited October 2021 in The Bullpen
Two new exchange-traded funds that let investors make leveraged or inverse bets on a popular barometer of market fluctuations are set to start trading later this fall. Similar products devastated investors in a high-profile blowup less than four years ago.

“The new funds, run by asset manager Volatility Shares LLC, were cleared this month for launch by the Securities and Exchange Commission. Both are linked to futures contracts on the Cboe Volatility Index, or VIX, sometimes called Wall Street’s ‘fear gauge.’ One of the funds bets that VIX futures will decline, essentially shorting the index. The other is designed to provide double the daily return of VIX futures, meaning it can rise sharply when stocks turn turbulent.

“Some investor advocates criticized the SEC’s approval, warning unsophisticated investors could get burned by such products. ‘There’s very little chance most investors can really understand how these products work,’ said Tyler Gellasch, executive director of Healthy Markets Association, an investor trade group that has criticized the listing of complex volatility products.

From WSJ October 11, 2021
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