With the Volatility Index back at a lowly $12, I am getting deluged with emails from readers asking if it is time to start hedging portfolios one more time and buying the iPath S&P 500 VIX Short Term Futures ETN (VXX).
The answer is no yet, but soon, possibly very soon.
They are inquiring at absolutely the right time.
And here is the problem. When the (VIX) rises, it usually spikes straight up, and then right back down again. That means the stock market has one more sharp selloff left before we hit bottom for 2020 and bounce.
Markets can ignore trade wars, rising interest rates, zero interest rates, foreign assassinations, falling earnings, and international political instability (Britain and Hong Kong) for a while, but not forever. When the time DOES come to pay the piper, prices with volatility will rocket.
So I am more than usually interested in hedging the downside risk for my trading book. A good rule of thumb is to let the (VIX) sit at a bottom for weeks, and then go buy the (VXX). That way you can ignore expensive and unnecessary time decay.
Which all brings me to the subject at hand.
If you are new to the service and have no longs, you probably should skip this trade and just watch it as a learning experience.
This can also be a great hedge for any long positions we may want to add in the coming weeks, such as in “trade peace,” or technology plays.
As I never tire of telling people, no one ever complains when they buy fire insurance and their house doesn’t burn down.
If you are new to this service, don’t freak out. My daily research newsletters are not always about exploring the esoterica of options, or volatility trading.
I’ll let you know when I’m ready to pull the trigger with a Trade Alert.
I am always trying to get better prices.
If you are new to the (VIX) game, please read the educational piece below.