I thought it would be interesting to plot a chart of the VIX vs key ETFs namely SPY's, EWZ (Brazil), EWH (Hong Kong), EEM (Emerging Market). What is interesting is what happens at huge extremes in the period from Oct 2008 to April 2009. The VIX itself adjusted close breached the 80 level twice within the month between 10/26/2008 and 11/20/2008. Note that Lehman Brothers filed for bankruptcy on 09/15/2008 and several other major institutions would have faced the same fate if the US govt had not acted. However it took a further month for the VIX to spike this was preceded by the collapse in all markets. From 11/20/2008 through to mid January the market started to rally again and the air came out of the VIX only to breach the 50 level on 03/02/2009. Notably SPY, EWZ, EWH and EEM hit there lows in early March. This is telling us that when you have the VIX hits extreme levels. From the perspective of an investor the most liquid volatility ETF product is the iPath short term futures VIX ETN (VXX). Specifically, the S&P 500 VIX Short-Term Futures™ Index TR offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects the implied volatility of the S&P 500® Index at various points along the volatility forward curve. The index futures roll continuously throughout each month from the first month VIX futures contract into the second month VIX futures contract. More details can be found at http://www.ipathetn.com/ .
