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Avoid the VIX Trap; Too Many People Are Expecting Volatility

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Like an angry bear that's been prematurely awoken from hibernation, the CBOE Volatiltiy Index (^VIX, VXX) has come roaring back to life lately and is suddenly the hottest mover in an otherwise jittery market place.

But before you look to hitch a ride to new heights aboard this momentum play, Ryan Detrick, senior technical strategist at Schaeffer's Investment Research says its probably a better time to sell volatility than to buy it.

"So many people just keep wanting to get in it," Detrick says in the attached video, "that we kind of take it from the contrarian point of view that any and all pops, you might want to fade it (the VXX). We've said that for a while and still think that's the case."

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Officially, the VIX is up almost 30% since its annual low of $11 hit in March. But Detrick says, since we're seeing "some of the most aggressive call-buying on the VIX since the third quarter of 2009," investors might want to buck the short-term trend and "go against the masses."

"So many people are looking for higher volatility with the dreaded September month coming up," he points out. "In my opinion we might have spikes up to $20-$25 but that might be the peak and that could be the buying opportunity for equities."

That said, if he's wrong and the VIX suddenly rockets higher he says ''all bets are off."

"In the 90's, the VIX spent six years beneath that 20-25 level," he recalls. "Currently we're about 20 months below that 20-25 level and my opinion, looking at history, is that we could have another year or two of a low volatility environment."

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