#svxy

Profiting With Volatility Gains As The Fed Drains

Setting the stage for current conditions

On Sept. 20, 2017, the Fed announced a balance sheet normalization program to reduce some of $4.5 trillion in holdings mainly acquired during quantitative easing programs from 2008 onward. The reduction of assets on the balance sheet is equivalent to a quantitative tightening (QT) policy that may accomplish many of the opposite results that three…

It’s the time of year when stocks are expected to rally.

S&P 500 (NYSEArca: SPY) seasonality, based on data going back to 1950, confirms the tendency to end the year on a high note.

At first glance, this looks like a good setup to short the VIX.

Three options to short the VIX are:

Buy VelocityShares Daily Inverse VIX ETN (NYSEArca: XIV)

Buy ProShares Short VIX ETF (NYSEArca: SVXY)

Short iPath S&P 500 VIX ETN (NYSEArca: VXX)

However, S&P 500 strength does not automatically translate into VIX weakness, especially during the final days of the year.

In fact, the VIX tends to rally in late December. The chart below shows that shorting the VIX during the ‘Santa Claus Rally’ period is not the most brilliant of ideas.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

I could not watch ProShares Short VIX (SVXY) closely today, so I cut the target, and missed out on some upside.

DateIn Tick Name Cost Price P/L %Yr DateOut Held 12/1SVXYProShares Short VIX Short-Term Futures ETF$72.93$74.181.44%525.12%12/21

Continued Holds

Linn Energy LLC (LINE) is gradually rising. One OK (OKS) bounced 6.21% for me. Everything in my portfolios rose slightly, except for PBR, GME, and PAA. I considered selling some of the Energy MLPs (MMP, PAA, OKS) to rebalance after the LINE purchases. I still believe that the MLPs are a good play, though I wish I had waited a week on some!

New Holdings

I re-entered Vanguard High Dividend (VYM) yesterday, and added to my Apple position today.

On December 1st, I sold Berkshire B and TZA to free up capital to buy Linn Energy (LINE). Berkshire B isn't normally a short-term trade for me. However, the gain was about 50% annualized, and the sale made room for an opportunity.

Vanguard High Dividend Yield Index ETF (VYM) stopped out at about a six percent profit. I would rather have let it ride; that is the trouble with trailing stops.

DateIn Tick Name Cost Price P/L %Yr DateOut Held 11/18BRK.BBerkshire Hathaway B$146.17$148.791.77%50%12/113 6/24VYMVanguard High Dividend Yield Index ETF$66.36$69.586.05%13.80%12/1160 10/31TZADirexion Daily Small Cap Bear 3X Shares$13.76$13.790.14%2%12/131

New Holdings

I added to my position in Linn Energy LLC (LINE). I noticed that LINE reached an historical low of $15.89. By the time I started buying on the dip, it had reached $16.29. I then figured out what total position size would yield a certain monthly payment. I reasoned that the only time it had gone lower had occured in the recession of 2009-2010. Another two lots cost more, but still at a price not seen since May 7, 2010.

Apple (AAPL) traded at immense volume, on no news. I locked in a position at 4.2% lower than the prior close. This is one of those stocks that I want to buy and hold long term. I hadn't often done so, because I was waiting for the dip that seldom occurred.

I shorted VIX, using Proshares SVXY, targeting $74.18. I am targeting $49.03 for One OK (OKS).