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How To Profit From Stock Market Volatility
Rating: 4.0 out of 5(255 ratings)
13,485 students

How To Profit From Stock Market Volatility

A winning strategy every trader should know
Created byPeter Titus
Last updated 10/2019
English
English [Auto],

What you'll learn

  • Learn how to use ETF decay to your advantage
  • Use the VIX ETFs to put 2 extremely powerful fundamental factors in your favor
  • Take advantage of profitable situations when the stock market presents them
  • Learn how to tell the difference between short term pullbacks and recessions
  • Understand what the VIX is and what it measures
  • Learn effective risk management techniques
  • Understand examples of past volatility events and compare them to new situtations
  • Understand examples of past volatility events and compare them to new situations

Course content

2 sections • 12 lectures • 35m total length

  • Introduction2:33

    Learn a consistently profitable trading strategy that profits from high volatility and its decay by short selling VIX ETFs like VXX, across varying market environments.

  • Disclaimer1:25

    Navigate the risks of trading stocks, options, and securities, and understand why investors must assess their personal finances, note that information is not advice, and past performance is not guaranteed.

  • My Best Ideas0:14
  • Short selling and the cost to borrow3:10

    Explore short selling, including borrowing shares, selling high, and covering later, while evaluating the cost of borrow that can erode profits and noting broker rates.

  • Options basics5:38

    Use options as insurance to hedge stock positions, learning premiums, expiration, intrinsic value, and delta, while noting most options expire worthless.

  • The VIX and Volatility2:07

    Explains the VIX index, the fear index that spikes with sharp selloffs. Shows why VIX futures ETFs decay over time, making long holds unfavorable.

  • Trading volatility events9:36

    Trade volatility by distinguishing pullbacks from recessionary events. Pullbacks are short-term opportunities with quick recoveries, while recessionary events require patience, with the advance-decline line signaling warning signs.

  • Setting up your first trade5:44

    Prioritize risk management, sizing, and hedging when setting up your first trade, using call options to protect a volatility short in VSX while leveraging volatility decay and margin considerations.

  • How to start making money right away4:08

    Profit from volatility by shorting the VSX with disciplined risk. Hold long term, allocate 10–20% of your account, and add on spikes.

Requirements

  • Stock and options trading experience is useful, but not necessary
  • You will need a computer and internet connection
  • You will need a broker with a live or practice account that allows short selling and the ability to purchase options

Description

The key to making money from volatility trading consistently is to simply take advantage of volatility when it's high. If we wait long enough and manage our risk properly, we should be able to make money on every single trade we make. If we bet on a stock, we never know what it's long term direction will be with any certainty. If we get the direction wrong, we'll lose money. Volatility trading is different. We always know the long term direction is down. It's impossible to get it wrong!


ETF Decay

If we try to play rising volatility, we'll be wrong some of the time. Worse yet, we'll be losing money to time decay if we use options. If we buy a volatility ETF, we'll lose money over time to ETF decay. Graph any volatility ETF over time and you'll see that they're all plagued by hideous decay, 30% per year or more. If we bet against volatility, on the other hand, we'll have this long term decay pattern working with us instead of against us. That gives us a trade setup with 2 
extremely powerful factors working in our favor: dropping volatility AND ETF decay.

Trading Strategies

Finally, before you place your volatility trade, it's important to know if you're facing a recession, or just a short term pullback in a bull market. A short term pullback is usually over in a few weeks. If a recession unfolds, you'll want to wait for higher VIX levels before placing your trade and expect to be in the trade much longer. How much longer depends on the situation. Fortunately, you won't need a full market recovery for volatility to drop. Once the market settles down, your trade will become profitable. Throughout the course, I'll show you some of things to watch out for, and some of the techniques I use for analyzing volatility trades. We'll go over the difference between short term pull backs and recessions and I'll walk you through the volatility events from 2016. Finally, I'll show you how to set up your first trade and give you some methods for managing your risk. 

Who this course is for:

  • This course is for investors or traders who want to add a new trading strategy to their arsenal

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