Volatility Makes A Comeback…”Volatility has languished near all-time lows for months on end. That’s about to change.”
by James Rickards via The Daily Reckoning,
ZeroHedge.com
Aug 27, 2017
Volatility has languished near all-time lows for months on end. That’s about to change.
For almost a year, one of the most profitable trading strategies has been to sell volatility. Since the election of Donald Trump stocks have been a one-way bet. They almost always go up, and have hit record highs day after day. The strategy of selling volatility has been so profitable that promoters tout it to investors as a source of “steady, low-risk income.”
Nothing could be further from the truth.
Yes, sellers of volatility have made steady profits the past year. But the strategy is extremely risky and you could lose all of your profits in a single bad day.
Think of this strategy as betting your life’s savings on red at a roulette table. If the wheel comes up red, you double your money. But if you keep playing eventually the wheel will come up black and you’ll lose everything.
That’s what it’s like to sell volatility. It feels good for a while, but eventually a black swan appears like the black number on the roulette wheel, and the sellers get wiped out.
I focus on the shocks and unexpected events that others don’t see.
Right now looks like one of those highly favorable windows when the purchase of volatility is the right move. You could collect huge winnings as the short sellers scramble to cover their bets before they are wiped out completely.
Your correspondent (left) on the floor of the New York Stock Exchange with television anchor Lelde Smits, and Stephen “Sarge” Guilfoyle during a recent visit. Sarge is the director of NYSE floor operations and one of the savviest traders on the floor. He told me, “Jim, there’s no liquidity here; it left a long time ago. When markets turn, they won’t get any support from the floor.”
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