TABB: When Investing With Volatility Products, Watch Roll Costs, Asset Depreciation

Volatility-based investing has dramatically risen in popularity over the last decade as investors have become increasingly sophisticated, diversifying from a simple portfolio of stocks and bonds. In fact, there have been days when trading volume in CBOE VIX derivatives exceeds that of the SPDR S&P 500 ETF (SPY). But there are issues investors must consider, noted an August TABB Group report titled “Volatility ETPs: When Traders Cash in on Turbulence.” Investors who don't recognize how to maximize the benefits and avoid the pitfalls might experience disappointment.

Volatility trading steadily rising

The use of volatility-based investment products has significantly increased over the last eight years. In 2007 there were...