Even the biggest, most visible stocks on the market are dealing with split personalities. Like any other stock market trading strategy, trading volatility ETFs is a matter of timing, as getting in and out at the right times can be the difference between a profit and a loss. 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. Here is an exciting theory on how to make money in the stock market fast and easily.
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. Once volatility ETFs have been purchase, the volatility ETFs trade becomes a waiting game for a steep stock index sell off.
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 the market experiences its next bout of turmoil and sell off, stock traders and investors will bid up the price of volatility options contracts to protect their long positions against market downturns, which in turn will send the volatility ETFs up in price. When to sell is a matter of trader preference and one’s read regarding how bad the market sell off may be.
The severe economic crisis that occurred in the fall of 2008 sent the VIX above 80, with lesser spikes in the VIX to the mid 40s, due to stock market turmoil during 2010 and 2011. ProShares Trust VIX Short-Term (Symbol: VIXY) – The investment seeks to provide investment results (before fees and expenses) that match the performance of the S&P 500 VIX Mid-Term Futures Index. The summation index is trying to turn back up. It really should be a lackluster week in the market and today exemplifies that.
ProShares Trust VIX Mid-Term Futures Index (Symbol: VIXM) – The investment seeks to provide investment results (before fees and expenses) that match the performance of the S&P 500 VIX Mid-Term Futures Index. VelocityShares Daily 2x VIX Med (Symbol: TVIZ)- The investment seeks to replicate, net of expenses, the returns of twice (2x) the daily performance of the S&P 500 VIX Mid-Term Futures index.