Australian Volatility Index
Is there a way to invest in an Australian volatility index similar to the VIX index. I want to protect my portfolio in case of a sell off. Glen
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Answer
Hi Glen,
Investors can use the Australian VIX Index Futures to protect against volatility spikes on the ASX, which usually means a sharp pullback. However, there are other vehicles which can be used depending on an investor’s needs, especially if they’re reticent to venture into the Futures market:
- Indirect volatility exposure through the BetaShares Australian Bearish Equities ETF (BEAR) but it costs money to hold, and you lose money if the stock market rallies.
- Investors can buy Puts on the ASX200 to protect against downside moves but timing needs to be good because time decay can make it an expensive exercise over time.
- In the US there are a number of VIX ETFs with their own nuances such as the ProShares VIX Mid-Term Futures ETF, offering exposure to mid-term VIX futures.
NB There is a strong correlation between the S&P 500 and ASX200 VIX Indices and while not a perfect science, the US options are worth evaluating.
