Newly minted ETF issuer ConvexityShares has made its debut with the introduction of two funds that are aimed at helping sophisticated investors manage the volatility of US equities.
The ETFs may be deployed as tactical tools by sophisticated investors looking to manage their volatility exposure.
The ConvexityShares 1x SPIKES Futures ETF (SPKX US) and ConvexityShares Daily 1.5x SPIKES Futures ETF (SPKY US) have been listed on NYSE Arca with expense ratios of 0.65% and 0.79%, respectively.
ConvexityShares is a joint venture between Miami International Holdings, the parent company of the Miami International Securities Exchange (MIAX), and T3 Index, a financial indexing firm specializing in volatility and option benchmarking.
SPKX tracks the SPIKES Volatility Index, co-created by MIAX and T3 Index in 2019, while SPKY delivers lightly amplified (+150%) exposure to the index’s daily return.
The SPIKES index measures the expected 30-day volatility in the $360 billion SPDR S&P 500 ETF (SPY US). Similar to the VIX Index, which measures the expected 30-day volatility in the S&P 500, the SPIKES index references the implied volatility derived from options pricing.
According to MIAX, however, the SPIKES index contains two enhancements compared to the VIX. Firstly, to help improve index stability, it incorporates a proprietary “price dragging” technique which is designed to reduce erratic movements during periods of high volatility and/or low liquidity in the broader market.
Secondly, to calculate the index, MIAX uses highly active, electronically traded multi-listed SPY options over singly-listed S&P 500 index options which MIAX notes better reflects the nature of today’s high-velocity, and principally electronic, options market.
Thomas P. Gallagher, Chairman and CEO of Miami International Holdings, commented: “We are pleased to partner with T3 Index to provide a new way to trade volatility. The launch of ConvexityShares ETFs is an important milestone for the SPIKES Volatility Products franchise, bringing much-needed competition to the marketplace and providing a powerful tool to help market participants manage risk and capitalize on changes in market volatility.”
Joseph W. Ferraro III, President of MIAX Futures, added: “MIAX and T3 Index have developed a strong partnership as we developed and launched our portfolio of SPIKES Volatility Products. This launch expands our volatility trading ecosystem and showcases our commitment to offer new and innovative products to the trading community.”
Volatility-linked ETPs were hugely popular with institutional investors up until 2018 when the VelocityShares Daily Inverse VIX Short-Term ETN (XIV US), which provided short exposure to the VIX Index, effectively imploded during the February 2018 spike in US equity market volatility, a period that has subsequently been named ‘Volmageddon’. The VelocityShares Daily 2x VIX Short-Term ETN (TVIXF), another popular ETP delivering leveraged long exposure to the VIX, was also shuttered in mid-2020 amid criticism of the product’s performance during Covid-19 volatility and wider skepticism of the suitability of the ETN structure for inverse and leveraged exposures.
Following a period of being shunned by the market and regulators, volatility-linked ETPs are now staging a comeback. Volatility Shares, another newly minted ETF issuer, made its debut earlier this year by launching a pair of funds – the -1x Short VIX Futures ETF (SVIX US) and 2x Long VIX Futures ETF (UVIX US) – which provide similar exposures to those that were offered by XIV and TVIXF but with product enhancements aimed at addressing the flaws of these past products. Both ETFs have been steadily recording increased trading volumes each month since launching in April 2022.