Instruments to trade Volatility

Pedro Branco
A free video tutorial from Pedro Branco
Options Trader focused on Volatility ETNs. Book Author
3.9 instructor rating • 5 courses • 2,316 students

Lecture description

Instruments to trade volatility

VXX (1x)

SVXY (-0.5x)

UVXY (+2x)

Learn more from the full course

Stock Options Strategy: Beginner level

MYOPTIONSEDGE: An easy and highly profitable weekly income strategy

01:21:21 of on-demand video • Updated October 2020

  • An easy to implement, highly profitable options trading strategy in one of the most liquid ETN (VXX)
  • How to avoid being burst when volatility peaks!
  • Earn money; have an extra income
  • Achieve an expert level knowledge on volatility trading
  • Dramatically improve options trading skills
  • Forget technical analysis and indicators that produce non-consistent results
English [Auto] Well let's see why investing in volatility is so interesting and how to trade it which instruments to trade. So if you see a price or evolution of a stock in this case Twitter you see that you know there is this big box then come down. Then there is also these way of price increase. But then there is this gap also here when that is earnings. So for me when you buy a stock you have like 50 percent chance of you know being right on your mobile if you go long you where 50 percent chance of going long and 50 percent chance of going down. And that's why for me so it will be predictable the price movement of a stock. And that's why I moved to volatility trading. So if you see here the peaks index what we can see here is that there is some kind of predictability. So if you see where there is huge volatility explosions it never rests with far too much time. You know if if there is peaks in the zone 3 about 20 you know here there was a big mess in the market in February 2013 you can remember and it's a two huge volatility explosion and it stays there. But you know this was like for one and a half months not but then it came down. Then what is more normal is the volatility and the peaks to be mine. One week two weeks maximum or less both 20 Indie's is Zone 3. Also there is in the zone to be no more and more time present here. And it is also you can see the small volatility bumps on this zone. But also even about 15 16 if it never stays there too much time. So what we say is that the VIX Index or the volatility is media reporting and even if it is in Zone One it does more than the see to go up than to continue to put out. So I designed here these arrow on yellow to see that there is a tendency in these past years of average Viox value to be decreasing. This is due to these long bull market that we are facing the last years. So why vesting in volatility is so attractive to resume given the current issues of price action or VIX and volatility in general. It is more predictable than price movements movements of a stock or an index. And as you can see these mean reverting characteristics so in the positives when volatility is high in the zone 3 of those 20 it is expected come down after market settles and it is predictable there should be opportunities to make money with an etch when volatility is low comes on wanting to expect it to continue low in the short term but unexpectedly the volatility can all or can explode so long volatility long volatility tradable instruments and long term depreciation due to its construction that we will see later on in the course. But also we can benefit from it. So on the negative side the volatility is more predictable on the low side when it pops could be violent including overnight or gapping in the next day. So volatility to traders used to say volatility takes the stairs down but the elevator. So the VIX index properties VIX Index is issued by CBOE the computation and all the details Betty. If it is being computed with several option prices and predicts the predicts the volatility of the XP X index on the Saturday range show so if volatility is 15 it is expected 15 or volatility of the SBX in the next 30 days. It's not for tomorrow or the next week it's for today. The best. Why is this so because of the price of the auction of the option. So when the market start to fall investors stop buying but options to protect their portfolios. And these will increase the volatility. Our computation of the peaks the VIX index. So a majority of time is below 12 although in the past two years it is that the losing tendency as we pointed out in the graph. And also as I told you it is I mean reverting index. So this is the most relevant property of weeks. And also in stock volatility for example volatility also means recycling. So this is also a property of volatility in general. So there is only an issue because everyone looks at leaks. But no one can trade VIX because it's a number. It's not tradable. It's not an asset that you can trade. So there are instruments that you can use to trade volatility and basically they are supported by the futures of geeks and then again we can discuss these later on in the course. So these are called it the ENSO exchange traded notes where he accepts he's one of them. And so the execs these long the volatility which basically mimics the VIX index price movements. It doesn't the leverage of one. It means that the volatility index grows 1 percent the excess tends to grow also 1 percent and the opposite is the same. So it is also auctions that people used to put in practice our strategy. There are other other assets like the x y. It's similar to the X X also long but it has a leverage up to two times. We also auctions but they. So the x y is it two times the leverage which means that the volatility spikes or the complete index or big spikes 1 percent. If the X-Y spikes 2 percent on the contrary on the short side of volatility you can buy it. You can buy Eski X Y and you have the exposition of a short volatility play. Although we are of leverage. This was formerly one time where Perche But after the February geek's explosion they reduce the risk for the owners of se x y and with these leveraged 0.5. It was also options. But the last one and the x y era lower liquidity. Then if the x x x x is the most leakin instrument in volatility we'd buy stock options spreads. That's why I choose to trade these strategy. So let's compare what these do. The price revolution for a certain period of fixed index in the x x. So if you can see there are these three volatility spikes which aren't the same on the x x. But basically the big comparison on these two Rafi's although they are the same spikes at the same time the VSX is losing Belvieu along as time passes. And this is deeper than that which is a country of the peaks Futurist curve that we will see later on in the course and that we will we will benefit to put in practice our strategy. So also there is you know although it is so predictable. But you need to take care of about priests of the trading with this current strategy and some's a majority of sharp volatility stretches the X and we looked at and in deed it should be consumated edging techniques that we will talk later on in the course. So money management is crucial for long term capital appreciation. When you short of volatility. And also Asharq is that these are good coupled of portfolio discussions so some Dushan are giving like 5 to 10 percent on short volatility strategies to boost performance of their portfolios. So hope you enjoy this. Shapter Let's move on in the course to the next one.