Frequently Asked Questions

What is roll cost in VIX futures and volatility-linked ETPs?

Roll cost, as it pertains to VIX futures, is the cost associated with shifting VIX futures positions from one maturity to another, colloquially known as "rolling" up or down the futures curve.

For example, many volatility-linked products seek to maintain a 30-day maturity. To do so requires continually selling some of a nearer-term term VIX futures contracts contract in favor of one one-month further out - or rolling the position. Practically speaking, each day, the ETP issuer must sell some portion of their position in front-month futures and buy some quantity of next-month futures, so as to maintain the 30-day maturity target. If the futures curve is in contango, that means they are constantly "selling low" on the near term position and "buying high" on the next-month position, generating a continual drag on the position.

 

Investments in ETPs involve risk, including the possible loss of principal, and are not appropriate for all investors. Non-traditional ETPs, including leveraged and inverse ETPs, pose additional risks and can result in magnified gains or losses in an investment. Specific risks are outlined in the fund prospectus and may include concentration risk, correlation risk, counterparty risk, credit risk, market risk, interest rate risk, volatility risk, tracking error risk, among others. Investors should consult with their tax advisors to determine how the profit and loss on any particular investment strategy will be taxed. Tax laws and regulations change from time to time and may be subject to varying interpretations. The information in this program is provided for general education and information purposes only. No statement within this program should be construed as a recommendation to buy or sell a security or to provide investment advice.