Trading Volatility

After seeing the futures reverse from –300 to being up +200, I have come to the realization that trying to trade directionally in this market is damn near impossible.  Today, my efforts have turned to: how to try and profit from the panic.  Panic and market volatility go hand in hand…that is obvious. 

How does one trade volatility? 

Well, you can dip your toe into the shark infested waters known as $VXX or the alligator pit $TVIX.  From my analogies, you can see that these have the potential to be treacherous trades.  If you are right, you stand to crush relative performance and drink the finest Scotch you can buy.  If not, well, it’s pork and beans…cooked AND eaten right in the can.  I’ve seen both trading $VXX. 

Fortunately, there are other means to take advantage of market volatility.  One of those is by using options.  Straddles and strangles are great vehicles for taking advantage of increasing volatility.   As with any option purchase, time is your enemy, but you only stand to lose if price doesn’t move much from current prices.

Does anyone really think $QQQ will be stuck in a range around 52 for the next few weeks?  I sure as hell do not.  Therefore, I am going to be entering a few strangle positions in various expiration months.  The closest expiration will have the closest strikes….and vice versa for the farthest expiration.  In this scenario, I stand to profit from a sharp move up or down…just as long as the resolution of prices at expiration isn’t in the 52 area. 

I need to delve into this a bit more to see what I’m going to buy…I’ll be posting buys on Stocktwits with an explanation here on the blog.  Follow me for these updates.

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