March 17, 2011 – The Volatility Spike

Featured Trades: (THE VOLATILITY SPIKE), (VIX)

 

3) The Volatility Spike. For those of you who have not seen a volatility spike happen before, this is what it looks like up close and ugly. This is why many hedge funds keep a long volatility position on their back book as a kind of diaster insurance. Well, the rainy day have arrived.

Those who took my advice to buy the volatility index (VIX) in January at $17, your day has arrived. It is time to take profits and sell you calls, call spreads, and outright long positions, if you have not already done so. Once the (VIX) spikes, it doesn't live up here forever.

And whatever you do, don't go short. Once this thing gets the bit in its teeth there is no telling high high it will go. Last year's high was 49% on the 'flash crash' day, and we saw 89% at during the March, 2009 stock market collapse.

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