In this podcast we are going to talk about trading high volatility. I want to talk about my experience in trading extreme or significant events such as elections and I’ll give you some tips on how to take care of risk and hopefully come out ahead.
- Some election stats. Interesting stuff, big picture.
- Then, let’s look at some trade ideas I have been sent and talk through them. I’m going to talk from a futures and options point of view.
- Tips for trading volatility if and when you see it. This is more for the active trader point of view.
Elections can be crazy for the markets. They can be turning points to longer term trends and they can be a complete fizzle.
This time around it could be any of those. There is no clear answer here. I, like you I’m sure have received a lot of things in your inbox. One thing is for sure, there is as much uncertainty here than at any time.
Uncertainly can lead to volatility. It certainly leads to higher implied volatility, which I will get to, but it also leads to a whole bunch of us not knowing where our market might be heading.
- Election years, both for new presidents and re-elected ones tends to be bullish in the stock market.
- Stock market volatility tends to fall – which is what happens in bull markets – and what happens when certainty returns to the market.
- The S&P has had a positive return in 19 of the last 23 election years since 1928. With that pattern, goes higher interest rates, or lower bond prices.
As for Current Performance:
- S&P is up 7.5% in 12 months and 2.46% YTD.
- Russell 2000 down almost 2% in one year and down 6% YTD.
S&P500 Volatility Index (VIX)
Gold Volatility Index (GVZ)
T-Note Volatility Index (TYVIX)
Notes & Bonds Spread Relationships
How to Trade Volatile Markets
- Trade smaller.
- Wider stops and wider targets.
- Less DOM, more charts.
- Fall down, get back up.
- Don’t hesitate.
- Be patient.
- Scenario test before open.
- Don’t be afraid to spread.
- Know your spread relationships.
- When in doubt, stop and change.