Enough Vol For All

Hey Traders,

Do you make it a habit to follow volatility?

If you don’t, you really should.

And I’ll even make it easy for you. As you may know, volatility is kind of my “thing” – I was even in the room as the Cboe Volatility Index (aka the VIX) was created.

If you haven’t already, you should subscribe to my VIX Edge newsletter. Every trading day, I send out a new VIX update, with in-depth commentary so you can stay on the cutting-edge of market vol.

And it’s all at no cost, so, even better!

Now, I know you might be thinking to yourself “But Mark, the VIX is under 16! Does volatility really matter right now?”

And the answer to that is absolutely, 100%, yes!

(If you were a regular reader of VIX Edge, you’d already know that … and you’d know that I expect the VIX to go lower … and that I’m still playing volatility and making money right now!)

Lower vol does not mean boring.

For example, today we’re going to see new regulations regarding gold go into effect … these could have huge consequences for the global economy, as Option Pit Commodity Expert Bill Griffo and I explained in Thursday’s live event.

(By the way, it’s not too late for you to learn all about this, and trade along with us … but you need to hurry, because time is running out! Like I said, these changes go into effect today.)

And even if these new gold regulations don’t spike the VIX, there’s plenty of other ways to profit from the volatility related to this event …

For example, did you know there’s a VIX specifically for gold?

The Cboe Gold Volatility Index (Ticker: GVZ) measures the implied volatility (IV) of SPDR Gold Trust options – the same way the VIX measures the IV of the S&P 500 (Ticker: SPX).

The index has been around since 2011, and offers a great way to monitor, and play, expected gold volatility.

Chart courtesy StockCharts

As you can see, right now GVZ is relatively cheap, given its range over the last year. 

I find this interesting, given that I think gold demand is likely to spike in the near future, given the new gold regulations, the resulting decline of the U.S. dollar, oncoming inflation, and so on — all of which act as tailwinds for gold prices.

Interestingly, unlike the SPX and the VIX, which often tend to act oppositely (when equities decline, market uncertainty, aka the VIX, tends to go higher, and vice versa), gold prices and gold volatility are not negatively correlated, 

Since gold prices often go up with economic uncertainty, gold volatility and gold prices often rise in tandem. 

However, gold volatility can also rise when gold prices fall, making gold volatility an attractive way to play uncertainty that could affect the commodity, regardless of the direction.

The fact that commodity prices and commodity volatilities don’t necessarily have the same negative correlation as the SPX and VIX means that commodity volatilities present even more ways to play economic uncertainty that other options aren’t as well-suited for.

For example, last week in my VIX Edge newsletter, I discussed oil prices and the CBOE Crude Oil ETF Volatility Index (Ticker: OVX), which is based on United States Oil Fund (Ticker: USO) option prices. Although oil prices were lifting, volatility stayed low, making it a cheap way to play potential oil price fluctuations.

And even if you don’t play volatility directly, these are still useful benchmarks for gauging investor sentiment for specific commodities, or trying to make predictions for future price action.

For example, a spiking OVX can indicate uncertainty in the oil markets, which may point to an oncoming increase in oil prices.

And oil and gold are far, far from the only “alternative” volatility options.

There’s implied volatility indexes for silver … energy … wheat … soybeans … lean hogs and live cattle (yes, really) …

There’s foreign exchange VIXs – the CBOE EuroCurrency ETF Volatility Index (Ticker: EVZ) is based on CurrencyShares Euro Trust (Ticker: FXE) options …

U.S. Treasury Note VIXs … VIXs for other indices like the Russell 2000 …

There’s even VIXs on specific equities! 

For example, VXAZN, which tracks implied volatility of Amazon (ticker: AMZN), or VXAPL, which tracks the volatility of Apple (Ticker: AAPL) options …

1-year chart of VXAPL, courtesy of StockCharts

I could keep going.

All of these offer really excellent options for hedging, or to play specific volatility spikes that you don’t think will appear in the VIX itself, or to generally track investor sentiment in a specific niche.

If you’re going to trade, you can’t ignore volatility, so use these VIXs to your advantage!

Your Only Option,

Mark Sebastian 

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