The market’s extraordinary volatility shouldn’t deter investors from taking a long-term strategic view of their portfolio. After all, time is still an investor’s greatest ally. But such volatility has created opportunities for investors to hedge their portfolios and perhaps even book some short-term trading profits.

Exchange-traded funds (ETF) have made this type of tactical investing easier than ever. ETFs allow the average investor to implement strategies that were once the exclusive domain of institutional investors such as university endowments and hedge funds.

We expect market volatility to remain elevated for at least another year, as policymakers haggle over solutions to the various fiscal and economic crises. In the interim, here are two ETFs that should continue to benefit from the resulting market uncertainty.

Unless you oversaw a hedge book for an investment bank, it’s unlikely you would have heard of the Chicago Board Options Exchange Volatility Index (VIX) prior to 2008. The VIX, also known as the “Fear Index,” tracks index options in order to measure the implied volatility of S&P 500 options over the ensuing 30-day period. In practice, this means that when the S&P 500 declines, the value of the VIX rises, producing an inverse correlation with equity prices.

Since the Great Crash of 2008-09, you’ve probably encountered the VIX in the financial media on a nearly daily basis; it’s become one of the most cited gauges of market sentiment. ETF sponsors have launched a number of competing VIX-linked products to capitalize on the visibility of this popular indicator. Among these products, our favorite is S&P 500 VIX Short-Term Futures ETN (NYSE: VXX).

This exchange-traded note (ETN) tracks the performance of a basket of short-term VIX futures with an average maturity of one month. The ETN has a negative correlation to the S&P 500, so it performs well as the S&P 500 declines and loses value as the S&P 500 rises. Overall, the S&P 500 VIX Short-Term Futures ETN is an excellent hedge against short-term volatility.

There are also ways to play government responses to the global credit crisis.

The Federal Reserve recently announced its intent to launch “Operation Twist,” its latest program to stimulate US economic growth. The central bank plans to sell $400 billion of short-term Treasury bonds in order to purchase an equal amount of Treasury bonds with maturities of six years or more. The Fed expects such moves to modestly increase short-term rates, while lowering long-term borrowing costs for consumers and businesses.

Regardless of whether one agrees with the Fed’s rationale for such action, iPath US Treasury Flattener ETN (NYSE: FLAT) is tailor-made to benefit from the Fed’s program. The ETN tracks a benchmark that is essentially short two-year Treasury futures and long 10-year Treasury futures. The ETN produces gains as the yield curve flattens, which occurs when short-term rates are rising and long-term rates are falling.

The ETN shows almost no correlation to stocks and, in fact, has been rising as equities have been falling, providing additional diversification for portfolios. The iPath US Treasury Flattener ETN should prove a solid play as the yield curve continues to flatten.