The beauty of volatility is that it’s the tail that wags the dog on Wall Street.
I know you’re seeing volatility in the markets right now, and probably hearing a lot of pundits talking about it, particularly in regard to options pricing.
And here’s the thing…
If you really learn how to trade volatility, you don’t have to use it just in trading stocks… You can trade volatility itself straight up.
You can trade the CBOE Volatility Index, or VIX for short, also known as the “fear gauge.”
There’s also the iPath Series B S&P 500 VIX Short-Term Futures ETN (BATS: VXX), and the iPath Series B S&P 500 VIX Mid-Term Futures ETN (BATS: VXZ), among others…
The beauty of trading volatility like this is they’re mean-reversion instruments. What does that mean?
It simply means that when an instrument like this spikes higher, it’s almost certainly going to revert back down to where it came from, its mean — its average.
So rather than trending higher over a period of time like a good stock does, it will bounce, and revert, bounce and revert.
And since it reverts to its mean, you can go against those moves. Same thing when it falls… It will almost certainly revert higher back to its mean.
And anyone who’s been following me for a while likely knows that I’m a contrarian who likes to fade big moves, and I love to fade volatility.
I like to buy it when it’s cheap, meaning go long via calls, and people don’t expect volatility to ramp up…
And I like to sell it when it’s expensive, meaning go short with puts, when it’s exploding higher and everyone’s losing their minds thinking the market’s going to be terrible forever, which doesn’t happen.
So when people are too complacent and think nothing will ever go wrong, go long. And when people are freaking out, go short.
Just make sure you have enough volume and narrow spreads, and, as always, use proper risk management!
Jeff Zananiri
Jeff Zananiri Trading
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
P.S. A Media-Driven Anomaly Is Prodding These Stocks Higher
How would you feel right now if you just closed a single trade for a 70% gain?
Pretty good right?
But what if that was only the beginning?
What if you closed that 70% trade in less than 24 hours?
Well, for many of Lance Ippolitto’s traders, that sort of opportunity has NOT just played out once…
But almost on a weekly basis.
Now of course, not every 24-hour gain* has been 70%… Some have been around 40%… Some have been around 50%… Some have been around 100%… And ONE very recent gain was worth 245%…
Now, I understand that sounds absurd…
Especially considering the market sort of sucks…
But thanks to something Lance calls a “Green Light Stock,” these 24-hour payouts have been happening about once per week.
And as you’ll see, these stocks are very different…
They’re not really impacted by the Federal Reserve or economic factors…
But they’ve shown the ability to pay out in as little as 24 hours.
If you want to see how they work, and how to start trading them.
