Three Simple Ways to Trade Volatility, as Markets Plunge


 
 
09:19 10/23/2018

Futures are plunging. Investors are fearful.

The sky is falling… the sky is falling…

But there’s little reason to panic and sell. For one, you had time to prep for volatility.

On August 29, 2018, we noted how others were prepping for midterm elections, fear, and considerable overbought conditions with the Velocity Shares Daily 2x VIX Short-Term ETN (TVIX), which traded at $31; iPath S&P 500 VIX Short-Term Futures (VXX), which traded at $28.75; and the ProShares Ultra VIX Short-Term Futures (UVXY), which traded at $41.15

At the moment, the TVIX sits at $41.82. We believe it could spike to $50.

The VXX trades at $34.56. We believe it could spike to $45. And the UVXY now sits at $53.38. We believe it can run to $65, near-term.

Even if you didn’t trade volatility, there’s no reason to panic.



Instead, listen to Warren Buffett

If there’s one person that knows how to weather a financial storm well, it’s the Oracle of Omaha, Warren Buffett. So what’s his trick?

Have Cash on Hand

“Cash, though, is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent,” he says.

Don’t Follow the Herd

One of the key reasons that many investors underperform in the market is because they move in and out of assets at the wrong time. When an investor sees everyone else making money from rising markets, that's when they tend to throw every spare dollar into their investments.

Unfortunately, when that same investor sees a group of other investors selling, the investor sells, too. In short, they get caught up in herd mentality.

A trader will often mimic the actions of a larger group so they don't feel left out of a trend, or miss what the herd believes is a “can’t lose” trade.

The rationale is simple.

It’s unlikely that such a large group of people can be so wrong.

Be in a Strong Position to Capitalize

With cash on hand, Buffett has the financial flexibility to jump on opportunities that popped up. As the billionaire often points out, keeping some cash on hand allows you to take advantage of corrections without having to sell other investments.


This article has been provided by a Chasing Markets contributor. All content submitted by this author represent their personal opinions, and should be considered as such for entertainment purpose only. All opinions expressed are those of the writer, and may not necessarily represent fact, opinions, or bias of Chasing Markets.
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