Here’s a hedge strategy to hold through this pullback via the S&P VIX (VXX)
Discussed in this article: Barclays Bank PLC iPath S&P 500 VIX Short-Term Futures ETN ( $VXX )
I want to look at the VXX in a little different way, the VXX on the short-term futures, on the S&P 500. If we look here, and superimpose this VXX against the S&P 500 you can see that when the S&P 500 falls the VXX rises, when it falls VXX rises, when it falls the VXX rises, here, when it falls VXX rises, and when it falls the VXX rises.
The same thing when the S&P is strong the VXX falls, when it’s strong it falls, you can see the point. Boom! It’s strong this time, but what happened? The VXX flattened out. So what we’re seeing here is a basing of the VXX right about the same time when the S&P looks like it’s rolling over. It’s already come down about five percent or so from the top, and members, I’m going into fib levels and all that. I’ll bet you didn’t know I looked at fibs, but I’m going to fib levels to see where this anticipated bounce would be.
For the time being what I’m looking at is buying some of the VXX here; here’s support, right down here. You look at this and I just don’t know how much lower this thing can go. So you look at buying the VXX as a hedge against the positions that you’re holding, that you want to hold, but you really don’t want to lose a lot of money on them if the S&P rolls over even further. So you hold onto those positions, knowing that if the market stays strong you’re not going to make money, or maybe not much money, but you’re not going to make money on the VXX position, but you’re going to wind up making money on the positions that you’re still holding.
On the other hand, if the market rolls over and those coveted positions of yours fall in price, you’re going to make more money that over compensates for that on the VXX. As I do this video it’s up above $20.00 here. Last time it was up above was there just a couple days ago; of course it didn’t work out too well. Since then what do we have? We’ve got a couple higher lows, higher low, higher low. So I like the idea that this is going to break out. I also like the idea that because of my thesis I’ve got plenty of cash on the sidelines. I’m not going in hot and heavy on the market because the market’s been pretty user friendly, but it’s not particularly user-friendly now.
So the nice thing about trading is, you don’t have a coach who makes you get your helmet and run in the game; you can just play when you want to play. Maybe this is one of those times you just sit on the bench a little bit, or even go up in the stands and watch the cheerleaders while you’re drinking a beer; that sounds pretty good to me.
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