John Jagerson

Predicting Volatility With the VIX, Part III

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ETNs

Exchange-traded notes (ETNs) trade like stocks, and can be a little easier to manage for new VIX traders than calls and puts. An ETN is very similar to an exchange-traded fund (ETF), and because it trades like a stock, it can easily be added to the active-trading portion of your portfolio.

Keep in mind that because all market participants know that the VIX tends to revert back from extreme highs and lows, the movements of a VIX ETN will be somewhat less dramatic than the actual movements of the index.

Learn the difference between ETFs and ETNs.

Trading the VIX

Trading the VIX is easy to do if you are inclined to add it to your list of investment strategies.

It is easy to analyze and is negatively correlated to a very high degree with stocks, which creates an opportunity to diversify. However, remember that VIX investments have some unique characteristics that make paper trading a must before jumping in and making live trades.

This article originally appeared on the Learning Markets Web site.