Has 2014 stock market volatility really gone the way of dodo
birds and dinosaurs as claimed?
The news du jour is that falling VIX means that stock market
volatility (NYSEARCA:SPY) is non-existent. Is it true? Recent
headlines give this innuendo. Here's a tiny sample:
VIX Tumbles to 9-month Lows - Zerohedge
VIX Volatility Index Falls to Lowest Level in Over a Year - Wall
Fear Strikes Out on Wall Street - Reuters
The dominant argument in these news articles is how volatility
has been virtually non-existent because the VIX has slid more than
11% year-to-date and over 30% during the past two years. The
problem is that 99% of all statistics only tell us 49% of the
story. As it turns out, the important details about true volatility
are buried within the other 51% of the story.
Rules for Smart Order Execution + Ron Grades a
$353,000 Retirement Plan
Our chart below shows how the S&P 500 Volatility Index
(ChicagoOptions:^VIX) has spiked 15% or more at least seven times
this year - or one-time for every month of the year!
Going back even further, volatility bursts of this magnitude
have been regular occurrences over the past year, roughly every 2-3
While there are thousands of financial indicators, the VIX gives
us a compact view of the public's psychology toward stocks. When
the VIX is falling, people's fear of stocks (NYSEARCA:VTI) is
generally low. Conversely, when the VIX shoots higher, stock market
The accompanying chart also illustrates the multiple setups for
(NYSEARCA:VIXY) capitalizing on short-term volatility in
Ahead of these volatility bursts, we've been careful about
picking our spots to be long VIX (NYSEARCA:UVXY).
On 7/9/14 when VIX traded just under 12 and doomsayers were
predicting 10, we said via our Weekly ETF Picks:
"While most market participants are expecting a lack of stock
market volatility to be a sustainable trend - we're betting the
opposite. When another short-term pop in the VIX arrives fast and
furious, we'll be ready. We're buying the VIX (expiration and
strike price reserved for subscribers) call options at $200 per
How did it turn out? From July 16-17, the VIX (NYSEARCA:VXX)
experienced a 32% surge and we were able to bag a double digit gain
in less than a month.
In the end, cashing in from volatility is all about being long
the VIX (NYSEARCA:TVIX) before volatility happens -
not after. If you fail to prepare, prepare to fail.
Profit Strategy Newsletter
uses technical and fundamental analysis along with market history
and common sense to keep investors on the right side of the market.
Our biggest winner so far in 2014 is a timestamped +188% gain from
our 6/5 Weekly Picks.
Follow us on Twittter @