Watch For Dropping Volatility
George Soros says the market is going lower. He’s so certain he’s backing it up with a big bet. According to his firm’s 13F filings, “Soros Fund Management” increased a put on the SPDR S&P 500 ETF Trust(NYSEARCA:SPY) by 154% in the fourth quarter. It’s now the largest position in the fund and is valued at $1.3 billion. Soros must be pretty sure of himself.
That’s not to say the rest of the trading world shares in his confidence. Take a look at volatility. After popping above the 20-level earlier this month the VOLATILITY S&P 500(INDEXCBOE:VIX) has settled down again below 14. It’s a trend Ryan Detrick, Senior Technical Strategist at Schaeffer’s Investment Research, says could stick around for several years. “I’ve come on with you guys for almost a year now saying volatility is probably gonna stay low. By low we’re saying that 20 level or so, potentially for several years. We’re only two years in, we could have another couple years of low volatility.”
So how is he playing this trend? Detrick notes that “when you look at the option activity…we’ve seen continued VIX call records, there were 8.4 million calls on the vix last month which was the all-time record…When the masses think one way, usually it pays well to go the other way.”
So Detrick and his Shaeffer’s colleagues are looking for those VIX pops up to the 20 level and are then buying puts on the ETN that tracks VIX futures, the iPath S&P 500 VIX Short-Term Futures ETN(NYSEARCA:VXX).
You can see the full “Breakout” segment below:
Description:iPath S&P 500 VIX Short-Term Futures ETN is an exchange-traded note issued in the USA. The Note will provide investors with a cash payment at the scheduled maturity or early redemption based on the performance of the underlying index the S&P 500 Short-Term VIX Futures TR Index. iPath S&P 500 VIX Short-Term Futures ETN(NYSEARCA:VXX)
Description:SPDR S&P 500 ETF Trust is a unit investment trust incorporated in the United States. The Trust consists of a portfolio representing all 500 stocks in the S&P 500 Index. SPDR S&P 500 ETF Trust(NYSEARCA:SPY)
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