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:
Click Image to Embiggen
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.
I hope this helps….
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Tags: $VIX $VXX $SPY