This post was just published on ZYX Buy Change Alert.
DJIA has just experienced the tightest range in over 100 years. It means no volatility. In theory it makes sense to mercilessly sell as much volatility as one can every day. Of course, the trade has been profitable over the last several weeks. Nothing begets success more than success itself. The crowd is now fully committed to selling volatility. VIX is near all time lows.
Our over 30 years in the markets have taught us that the real life in markets over a long-period of time is very different from any theory followed by those less experienced. Selling volatility every day is no different than jumping in front of a moving train aggressively and picking up pennies. Sure it can be profitable for awhile, but eventually those playing this game will pay dearly.
Based on our long experience, we have absolutely no doubt that sooner or later volatility will pick up. There is no good way to pinpoint the exact time. History does tell us that the periods of low volatility are always followed by periods of high volatility.
Given the foregoing, if VXX was a stock, we would be comfortable holding it. However as we have previously written, the structure of VXX is such that it decays a little bit every day. So we must balance the wisdom of continuing to hold VXX and the potential reward.
In view of the unrealized losses in this position, we go through this analysis twice every trading day.
At least for the time being, consider continuing to hold VXX if you are comfortable with the drawdown. Those who cannot and should not take this risk should already be out of this position. Those who are still in the position but are not comfortable with the risk may consider slowly reducing the quantity.
You are receiving less than 2% of the content from our paid services …TO RECEIVE REMAINING 98%, TAKE A FREE TRIAL TO PAID SERVICES.
Please click here to take advantage of a FREE 30 day trial.
Check out our enviable performance in both bull and bear markets.
