What Are “Volatility Derivatives” and How Are They Used?

Volatility derivatives are financial instruments whose value is derived from the expected or realized volatility of an underlying asset, rather than the price of the asset itself. Examples include VIX futures and options, or variance swaps.

They allow traders to directly speculate or hedge against changes in market volatility without taking a directional position on the underlying asset's price. They are often used by institutions to manage portfolio risk.