Volatility indexes have been sold-off over and over again making many traders wonder when do periods of high volatility actually follow periods of low volatility? I’m not going to pretend like I know that answer to that or present any statics that imply a time frame. What we do know however is that when volatility rises dramatically, like we saw in September when the VIX hit a 5 year high, and then again during the market debacle in January, the proceeding months have been followed by periods of low volatility. It’s a pattern most market participants are aware of and since we’ve been stuck in a period of low volatility for quite while, traders betting on another spike may soon be rewarded. Or may have to continue waiting patiently.
It’s hard to say exactly when we will get a spike. But after looking at a 5 year weekly chart of the $VIX you can see that it closed right above $17 last Fri. June 10th, 2016. If this level is breached to far we could see a quick rise up to the $20s or $30s. Again, it’s hard to say what the chances are for a breakout here. Interestingly, last week traders were buying volatility and hedging. While broad equity markets continued rising droves of August $205 SPY puts were being bought up and VXX (A volatility ETF that tracks VIX futures) maintained a strong bid.
I started trading volatility this year late in March. After 11 trades with $1500 profit and only two losses I do not currently have any more $VXX. I’m looking forward to putting on more volatility trades but now that I am out of those positions it may be easier to wait and see what happens this week as the market gets ready for Fed Chair Janet Yellen to delivers.
My track record on volatility trades this year has been going well. These have all been long positions, where I bet on volatility rising. I’ve blogged about these trades several times through the year.
With regard to the loss, I didn’t want to take a worse loss, especially in-front of the Fed this week. Unfortunately my timing was poor and I close right before the drop in the market on Friday. That was a real bummer but I guess not even Steph Curry and the Warriors can achieve 100% perfection! As we draw closer to the second half of the year the question for VXX traders is whether or not this line at $17 on the VIX represents resistance or a change in volatility?
Here are the combined realized gains for all my volatility trades that I post in the blog. I forgot to post the June trade. The 9 others (I believe) are all documented on the closed trades page.
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