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Don’t Fear Market Volatility, Profit From It
From Baltimore – In recent weeks you’ve probably heard a great deal about market volatility. In fact, for many investors, it’s been both a curse and a blessing.
Recently in TheOxford Insight, I highlighted a series of data points showing that the unique volatility we’ve witnessed this year is more than just an indicator of market uncertainty.
It is also a harbinger of investment opportunity.
Of course, I’m not the only person who feels this way.
In today’s Market Wake-Up Call, Chief Income Strategist and noted volatility trader Marc Lichtenfeld tells host and Associate Franchise Publisher Rachel Gearhart that he’s been keeping a particularly close watch on market volatility this year.
And he’s amazed at what he’s witnessed.
“This year, volatility has gone through the roof,” Marc says. “Things have been haywire.”
Marc’s right. We measure volatility in the market with the CBOE Volatility Index, or VIX for short. Over the past five years, the VIX has averaged about 17. For much of last year, it hovered between 12 and 14.
But earlier this year, the VIX soared to a historic and nearly unthinkable high of 85 – second only to the peak it hit during the 2008 financial crisis.
And while it’s fallen back from that astronomical level, volatility remains elevated, with the VIX hovering in the 25-to-30 range in recent weeks.
This volatility spike and ongoing elevation tell investors two important things…
First, the market – which is the collective wisdom of all the investors in it – remains highly uncertain about the future. The surge in COVID-19 cases across the globe and the economic shutdown implemented in response put the economy, employment and asset prices on what seemed to be a possible path to destruction.
Investors truly didn’t know what to make of it.
Second, the surge in volatility tells us that there is a rare opportunity here for investors who are willing to take advantage of market uncertainty. That is, a historically high volatility level creates unique opportunities for discerning investors to earn extraordinary market returns.
Market research has shown that volatility has an interesting ability to forecast stock market returns. Historically, low volatility tends to precede low rates of return, while large spikes in the VIX have been a good sign for future returns.
That pattern is shown in this chart.
As you can see, the higher the market’s volatility, the better the performance it signals for stocks in the immediate months that follow. And that’s reflected in the bigger-than-average returns we’ve seen in stocks since they bottomed out in March.
And Marc’s proprietary volatility-based trading strategy, which involves trading a special fund that tracks the VIX, has benefited enormously from the current market environment.
“The size of the moves of the ETF that we trade… are quite large now because volatility exploded,” Marc says in today’s video.
“So it has more room to run. If the VIX is at 15, it has a shorter range that it’s most likely going to move,” Marc says. “But when the VIX is at 35 or 40, it has a lot more room. So the chance for larger profits is much greater.”
The data agrees with him.
As you can see in the chart below, periods in which the VIX level was above its historical average tend to reflect wider overall moves in the stock market.
That means traders who can take advantage of the market’s “uncertainty” can generate rare profits in today’s market.
In fact, Marc’s volatility trading research service, Closing Bell Profits, has put his subscribers in a unique position to benefit from current market conditions.
And Marc expects his strategy to continue producing winners for the foreseeable future, as it doesn’t appear that volatility will recede to previous levels anytime soon.
The time to take advantage of volatility is definitely right now.
Just click here to watch the full video.
Marc’s trading strategy is quite unique, and it’s already given some of his subscribers truly remarkable gains.
In fact, he’s giving you – free of charge – the last ticker symbol you’ll ever need.
So if you’re interested in learning more about Marc’s volatility trading research service – and how to use it to pad your wallet – just click here to check it out. I promise you won’t regret it.
Enjoy your Sunday,
Anthony