Pundit's Perspectives – Tue 19 Apr, 2016

Is the VIX a good play right now?

As the US markets continue to grind higher the VIX is moving lower to levels where it has bounced off of a number of times int he last couple years. there seems to be move analysts moving back into the camp of “The Fed has your back” but that does not mean there could not be a pull back. To play any pull back in the US markets Doc and I prefer to play one of the VIX derivatives however as the post below states it is not a long term hold.

Take a read of the post from The Street and let us know how you feel about a potential pop in the VIX and how you like to play it.

Click here to visit the posting page.

Volatility spiked back in August of 2015 and experienced an echo-boom in January of this year.

Late October-early November volatility lows, as measured by the CBOE Volatility Index (VIX.X) , are associated with higher levels for the S&P 500 than Friday’s close. An upcoming pull-back could be more methodical and less pronounced. We are experiencing technical resistance, a broadening, with lower S&P 500 highs. Furthermore, it’s been 11 months since the S&P 500 reached it’s all-time high. Our upward trend channel from the February lows is waning and flattening out.

This combined with how coupled the stock market has been with WTI Crude Oil prices suggests that any move down in oil prices could be less than beneficial for U.S. Markets. Furthermore, an oil dip after DOHA could hurt your portfolio’s performance.

 

CBOE Volatility Index 13.62 declined 1.74 for the week and once again back near the lows made between late October and early November last year when SPX was trending higher. Based on real-time prices of options on the S&P 500 Index, VIX reflects investors’ consensus view of future (30-day) expected stock market volatility.

“While day-to-day VIX changes offer little forecasting insight following the VIX Futures premium helps since it measures expectations of tactical professional traders and money managers using VIX futures and options for hedging long portfolio risk.

“Premiums for normal term structures during uptrends are 10% to 20% while premiums above 20% are unsustainable suggesting expectations that the VIX will soon return to higher levels associated with pullbacks. Alternatively, premiums less than 10% suggest caution and negative premiums indicate oversold conditions. The volume weighted premium was in the normal range last week, ending Friday at 17.25%”

What should you do to protect yourself and your portfolio?

The purest play is to buy the May or June VIX futures or in the money VIX calls. Some people do not have futures or options trading capabilities, so they could buy (VXX) . Of course, the VXX is a terrible position to hold long term because it’s designed to lose 99% of it’s money over time. The only investment worse than VXX is (UVXY) or (TVIX) , which are VXX levered times two.

Trading volatility or hedging through volatility derivatives can be complicated, but it doesn’t have to be. You can always sell some of your winners, take some profits and keep cash on the sidelines. If you want to bet that the S&P 500 will pullback, you can buy (SH) , that’s inverse S&P 500.

I do not have any major holdings right now. I’m mostly in cash and am waiting patiently for this pullback so I can reinitiate my favorite long positions, (ZIV) , (XIV) and (SVXY) . These exchange traded notes are some of the best ways to gain long stock market exposure without having to invest as much of your cash. Meanwhile, I’m going to hold onto my Jan. 19, 2018 SVXY 20 calls.

From a technical perspective, the S&P 500 is approaching significant levels of resistance and making lower and lower highs since May 2016. In addition to this, the S&P 500 outlook remains weak due to lower crude oil prices on the recent DOHA meeting failure and the S&P 500’s high correlation with crude prices. The current uptrend is waning and hedging your positions near S&P 500 recent highs can help you reduce risk.

This article is commentary by an independent contributor. At the time of publication, the author held positions in the January 19, 2018 20 calls mentioned.


Comments:
  1. On April 19, 2016 at 10:02 am,
    CFS says:

    No. Too dangerous, since he markets went up in Weimar times.

    • On April 19, 2016 at 10:44 am,
      Jerryck says:

      Debt, money printing, negative rates, elimination of paper money. I would kinda agree, shorting this market is not the brightest way to make money. Money from all over the world is looking for someplace to go.

    • On April 19, 2016 at 1:23 pm,
      Matthew says:

      Just holding gold and/or the miners is enough. SPY is already down 42% when priced in GDX and looks like it’s going much lower very soon.

      http://schrts.co/RCIZhf

      • On April 19, 2016 at 1:45 pm,
        Silverdollar says:

        Thanks for posting. Sure hope you are right!

  2. On April 19, 2016 at 10:03 am,
    CFS says:

    The not he……just typing on a stupid IPad too fast.

  3. On April 19, 2016 at 10:11 am,
    Mike from Abq says:

    Apologies if I sound like an idiot – but how does one buy shares in the ^VIX? Is it bought and sold like a normal stock or what? I did a quick look in Schwab and it definitely did not like the symbol – “^VIX”

    • On April 19, 2016 at 10:50 am,
      Paul L says:

      Use the Vixy etf but is dangerous but not at current levels.

      • On April 19, 2016 at 11:08 am,
        Chartster says:

        Agreed! Got to wait for a “for sure” buy signal.

      • On April 20, 2016 at 9:48 am,
        Mike from Abq says:

        Thanks!

  4. On April 19, 2016 at 10:32 am,
    Chartster says:

    VIXY looks great, but it also looks like two more weeks before the market starts to drop. Maybe the equity markets do a double top? Sure looks like it..

  5. On April 19, 2016 at 10:48 am,
    CFS says:

    OFF-TOPIC:
    Turkey threatens to walk away from a controversial migrant deal with the European Union – unless it is granted visa-free travel in the bloc. Islamic State is reportedly preparing terror attacks on European beach resorts.

  6. On April 19, 2016 at 10:50 am,
    Paul L says:

    I have a big loss with VIxy so far. I should never play with this. Even when the vix shoots up 8% this thing moves up 1% only sometimes. With the vix with hardly any change yesterday it shot down 5 to 6% I believe. BP is ready for a major breakout out. I chased it yesterday as I got into work late and missed the $30 price and added 4k shares at 31 and 1k more in the pre-market today.

  7. On April 19, 2016 at 11:16 am,
    Tad says:

    VIXY & TVIX I’m playing… well, actually they’re playing with me at the moment.
    There are no rules with these it seems. Just luck. You’re either ‘in play’ when ‘it’ happens or you’re not. Its about judging an entry point at these ‘cheap’ prices and maybe taking losses for a few days until something breaks. It may not break though. Not for a while anyway…

    • On April 19, 2016 at 12:53 pm,
      Silverdollar says:

      Tad:
      Agree with your comments. I’ve got a few shares of TVIX and even though I’m behind, I still can’t see the markets taking off for the moon because the “Fed has our back”. Bought some more today. One doesn’t need a lot of volatility to see these instruments jump substantially. I’m prepared to ride the issue for a couple months. Risk is certainly there but so are the rewards if one gets the timing correct. Exactly the same as playing with Nugget and Dust in my opinion. Time will tell. Good luck.

      • On April 19, 2016 at 1:28 pm,
        Tad says:

        Thanks. You too.

  8. On April 19, 2016 at 11:17 am,
    Birdman says:

    It seems inevitable to me that the trading houses and banks will eventually want to take the market down and pull the rug out from under retail investors. How soon that happens is anybodies guess bu as it stands none of them can make money on the equity side as growth has been so feeble. With earnings coming in so poor the only opportunity lies on the side of capital appreciation of stocks and that is only going to be possible again after some sort of decline. So this is baked in the cake if you just understand the motives of traders at that level and I think we are getting a hint of the action as BofA institutional’s and so-called smart money keep selling into the current rally. Obviously this will have to happen before year end if the trading houses are going to post decent numbers. So we should not assume that markets will just march forward as they have without there being a correction that is meaningful first. Just an opinion of course but that is how I see it.

    • On April 19, 2016 at 12:00 pm,
      OOTB..................... CCF says:

      I would have to agree with you on…..”the trading houses and banks……..pull the rug”

    • On April 19, 2016 at 12:53 pm,
      Silverdollar says:

      +1

  9. On April 19, 2016 at 12:00 pm,
    CFS says:

    Wee you Birdman or Birdbrain?
    Of course, markets do not March forward without corrections….there is a natural pace to all markets.
    The technical analysis procedures embody this.

    • On April 19, 2016 at 1:17 pm,
      Birdman says:

      You bugging me today too? What’s with you guys.

  10. On April 19, 2016 at 1:13 pm,
    Paul L says:

    Performance comparison if S&P vs vixy. Feb. 8th the S&P and vixy were at 100% even. Now the S&P is showing 113% and Vixy 58.2% so these have to cross again sometime.

    • On April 19, 2016 at 1:27 pm,
      Tad says:

      Tomorrow would be nice.

  11. On April 19, 2016 at 6:23 pm,
    Dan says:

    I’m still in June UVXY calls despite all the bashing from that huckster GS. I’m down 80%+ but it is a very small portion of my account, as blow ups come with the territory with OTM options.

    I will look to roll over to Septembers if we get a pop in the VIX futures here. Market plunge may not come until the summer.