2 VXX Trades to Embrace the Post-Election Volatility

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Volatility will take center stage in the days ahead as Wall Street grapples with the implications of a Trump Presidency. Investors’ displeasure for the upset was on full display during last night’s trading session. S&P 500 futures were down as much 100 points, or roughly 5%. Although the losses have been pared back significantly, the CBOE Volatility Index — and its suite of volatility products, like the iPath S&P 500 VIX Short Term Futures TM ETN (NYSEARCA:VXX) — will be rockin’ and rollin’ today.

VXX
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Source: OptionsAnalytix

VXX was already, well, volatile running up to Tuesday’s election. The nine-day losing streak in equities delivered a nine-day winning streak to the volatility ETF as jittery investors abandoned ship.

The most interesting development was the wicked Monday-Tuesday stock pop (presumably on the increased likelihood of a Clinton victory) that toppled VXX.

Traders got that one dead wrong.

A Pair of Volatility Trades for Trump Lovers and Haters

One of the best plays for a market crash is to fade the volatility spike via bearish plays on VXX and the like. The problem this go around is that by the time the market opened today, last night’s -5% bloodbath morphed into an itty-bitty -0.8% down-gap that has since transmuted into a 1% to 3% gain for the bobbing and weaving VXX.

So, unfortunately, the “fade the fear” trade isn’t quite as attractive this go around. Nonetheless, if you’re willing to side with equity bulls and bet volatility subsides in the weeks ahead, buy the VXX Jan $33/$27 put spread for $3.24

The risk is capped at $3.24 and will be lost if VXX sits above $33 at expiration. The reward is $2.76 and will be captured if the volatility ETF falls below $27 by expiration. I suspect you may get a better entry point on bearish volatility plays if you wait a few days to see if we get some post-election stock selling. Any kind of downturn in the days ahead will usher VXX to higher, and therefore better, levels to initiate bearish trades.

Alternatively, if you think doom has come to town then a bullish VXX bet is the way to go. Buy the Jan $33/$39 call spread for $1. The risk is limited to the initial $1 while the reward is limited to $5.

It’s worth noting seasonal tendencies favor bearish volatility plays here. VXX has a history of sucking wind going into year-end as the holiday hubbub tends to put stocks to sleep.

At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/11/vxx-vix-volatility-etf/.

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