One Way To Take Advantage Of Rising Volatility

| October 11, 2013 | 0 Comments

trading floorOne of the consequences of the political deadlock in Washington has been higher volatility in the markets.  After all, when your government is flirting with financial catastrophe, investors are bound to be nervous.

However, volatility hasn’t been running nearly as high as you might expect given the real danger of a US default.  In fact, the VIX (the so-called investor fear gauge) just briefly crossed the 20 barrier before falling back down to 16 and below.

Keep in mind, 20 is the long-term average of the VIX (CBOE S&P 500 Volatility Index).  Anything above 20 and the markets are considered “volatile”.  That we barely saw 20-plus in the VIX is a sign investors aren’t taking Washington’s antics too seriously.

Here’s the thing…

Whether you believe a US debt default is a real possibility or not, it’s important to know how to take advantage of higher volatility.

Trading during volatile periods isn’t as simple as just buying puts on some index ETF.  Big swings in the market often come with volatility.  And your index puts could be worth zero just as easily as they could skyrocket in value.

That’s why buying calls on VIX or some other volatility index is a safer strategy overall.  Yes, volatility tends to remain low most of the time.  And VIX calls can be expensive.

But, when the VIX climbs, it often climbs in a hurry.

In fact, if price is a factor, you can still get reasonable protection (or speculation) from an out of the money VIX call.  That’s because volatility tends to move so quickly, OTM calls often remain in play right up until expiration.  (Another easy way to reduce cost is by purchasing call spreads.)

Basically, for a pure volatility strategy, nothing beats trading the VIX or similar products.  If you are expecting (or worried about) a rise in volatility, buying VIX calls is the safest trade you can make.

Okay, so I’ve talked about how to use VIX to trade volatility.  But, what other methods are there for taking advantage of higher volatility in the markets?

Once again, I have answers for you.  As a matter of fact, I’ve just released a brand new report, How To Take Advantage Of The Coming Rise In Volatility.  I think you’ll find this report highly useful in today’s trading environment.  And of course, the report is chalked full of great information.  Go ahead and follow the link to check out my latest research and trade ideas.  

Yours in Profit,

Gordon Lewis

Tags: , , , ,

Category: Breaking News

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.