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ETF Investment Strategies: Best Practices from Leading Experts on Constructing a Winning ETF Portfolio by Aniket Ullal

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CHAPTER 20VIX FUTURES-BASED ETPs

VIX futures-based ETPs represent a significant industry innovation, because they give investors the ability to trade implied volatility in a more accessible format.

It is important to remember that volatility is not a true asset class in the sense that it is not a return-generating asset. Still, it can serve as a diversifier in a portfolio and can be used to hedge tail risk or generate excess return by taking a short-term view on volatility. However, these are complex products and recommended only for sophisticated investors who are familiar with volatility and futures-based products.

In this chapter we explore some of the key concepts related to these products.

1. The VIX Measures Implied Volatility, and “Spot” ...

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