I have been a trader in stocks, mutual funds and options since 1983, and have learned a lot of lessons. By now, anyone who follows the stock market on a regular basis has likely heard of the Chicago Board Options Exchange (CBOE) Market Volatility Index (Symbol: VIX). These volatility ETFs can be freely traded by anyone with a regular brokerage account (no options trading account is necessary) to trade stock index volatility, with the goal of making a profit.
The VIX is a measure of implied market volatility over the upcoming thirty (30) calendar days, based upon how much options traders are paying for options contracts in the options markets to protect their long positions against market downturns (see: How to Trade Options ). Once volatility ETFs have been purchase, the volatility ETFs trade becomes a waiting game for a steep stock index sell off.
When to sell is a matter of trader preference and how one reads a stock market selloff in regards to its potential longevity and depth, as a longer and steeper selloff is likely send volatility based ETFs higher. When the VIX falls below 20, and all is well in the stock market, it is time to consider buying ETFs that derive their price from volatility options associated with the VIX. First I cannot say that buying a certain stock market newsletter is worth it or not.
When the stock market is in rally mode, the VIX typically falls below 20, which indicates that stock traders and investors are not worried about a sell off and are not willing to pay a lot for options to protect their long stock positions, as they expect the stock market rally to continue for the foreseeable future. If a stock rally is particularly strong, the VIX may fall below 15, which indicates complacency prevails in the stock market.
How long the VIX stays below 15 is anyone’s guess, since stock rallies and complacency can last a long time; however, a VIX below 15 can be a good time to buy ETFs that derive their price from volatility options in anticipation of future stock index volatility. When to sell is a matter of trader preference and one’s read regarding how bad the market sell off may be. This article tells about a group that sells newsletters and do it by talking about how great a stock sounds.