My record in the market this year sucks, so take my opinions with a grain of salt. Anyway…
Back in mid-April the VIX was sitting at fifteen and change, looking like a lake of still, calm water of steady-as-she-goes S&P500 sailing up and over 1200.
I figured that was a good time to add to my put options position, betting volatility was coming and the S&P500 was due for a pullback. Occasionally I guess right
Mid-April would also have been a good time to buy VXX. It was then about 18; yet, just two weeks later – today it closed over 26. And we got the VIX cresting over 40, then closing at 32.80.
The water on the lake doesn’t get much rougher than we saw it today.
At least on this round, I think you’re late to the Ball Game to be making a play on the increasing volatility.
My gut instinct (= a GUESS) is that the fool’s rally now shows it still has legs to take the S&P500 back above 1200, with volatility probably decreasing.
And so I find myself unwilling to bet the next six months show us markets falling significantly below today’s lows.
But I find myself COMPELLED to bet that sometime during the next 24 (or 36) months, we’ll see markets go way below today’s lows, as in 20%, or 30%, or more. That’s why I like the leap put options on the indexes with expiration out to at least late 2011. But those got A LOT more expensive during the last week!
So we sit tight. We hope our guess is right, that the resuming fool’s rally (roughly to 1200) will shake out volatility, shake down the prices of these options.
Then we’ll load up on put options again, and maybe VXX also. I’m GUESSING that might be late this year or early 2011.
My basic view is that we don’t – yet – have the return of unending waves of really bad news coming at us relentlessly, not yet at least. But down in the bowels of the broken world economy there is some nasty stuff brewing. The Fat Lady hasn’t pooped her final big brown stinker yet (second leg down in the W-shaped recession/depression), but she’s got it cooking.
