Investing into volatility products (volatility investing) is not a very widespread topic in the area of financial investing products. Let’s shortly define what is meant with volatility investments. The term volatility refers to the movement of a certain price of a given underlying; this can be an index, a stock or every other product class.
For measuring the volatility, I personally use the VIX index which basically expresses the volatility in the S&P 500 ($SPX) Index. Volatility increases at sharp and fast price movements which is mostly the case in bearish markets. It declines in calmer market conditions and therefore mostly with rising index prices.
Usually bearish markets can additionally to a chart pattern also be seen at the current volatility levels whereas a good indicator is a VIX Index level above 20. Such conditions which could be seen in August 2015 or beginning of 2016 usually go ahead with falling index prices and increasing volatility, therefore it makes sense to invest into Volatility products as these in my opinion are a more safer bet in investing then a direct stock investment(I’am refering to long stock positions in bearish market environments) in bearish markets due to the fact that a rising market will force Volatility to go down again and you can make a nice profit.
Such an investment chance showed itself in mid-February and I invested into the inverse volatility ETF SVXY, since then there was a rise of more than 30% in one month. For me this investment was more of a long-term investment as I’m currently not invested with any bullish positons in any Stock or Index, at least in my investment account due to the fact that we are still in a bearish market situation at a long-term view. Just one side note, I mentioned that I tread this volatility trade like an investing position nevertheless I secure it with stop loss according to chart-pattern and try to not keep it for too long. (more than a year)
For a detailed view in the trade see the chart below with the low in mid-February of around 30USD, currently the ETF trades at ~47,4USD. (You can check charts for free on stockcharts.com)
If you are interest in volatility trades to support the performance of your investment portfolios just let me know and I can provide more information in future posts.