Is the bottom in for volatility? I have no idea. No one does. But I
will say a there is a favorable risk/reward here from the long side to
start the week. Why is it so good? Well, we have a defined level where
we’ll know if we’re wrong. If we take out Monday’s lows, all bets are
off. If you can stomach it, you can also use Friday’s low as the mental
stop. It’s an easy entry point.
Here the potential failed breakdown last week and quick recovery back
above the early 2013 lows. It’s when things like this occur that I get
excited. The possibilities if correct are tremendous. But more
importantly, if we’re wrong – who cares? The risk is very well defined.
Also, between what I’m hearing from traditional media and the amount of
bearish superlatives about volatility, I’m pretty sure we’re close to an
important low. But the best part is we’ll know if we’re right very soon
and the risk/reward is very much skewed in favor of volatility buyers.
We’re looking at a daily candlestick chart of the
$VIX
going back a couple of years. Last time we were down here, Volatility
spiked 23% in a few days and over 60% in less than a month. I think we
can see something very similar:
There are a lot of ways to take advantage of this: ETFs, Options,
Equities, etc. The execution really depends on your time horizon and
risk parameters. I just like the price behavior, so I wanted to point
out what I’m seeing.
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