Everything is risky. Buying long is even riskier. At least there is a 20 year history to show that a VIX above 30 doesn't last. The concern is to buy when the VIX is above 30 and see it got to 50. That can happen but it is not the same is buying when the VIX is 12 and seeing it go to 50. Far from it. You just need to be prepared for it. Which means you don't get greedy and go for broke.
But I no longer count on decay as a source of profit. That seemed to exist during low volatility times but it seems that it hasn't existed during this last 6 months of higher volatility. I don't pretend to understand why but I cannot ignore what has happened either. I suspect that at some level of volatility that the decay isn't large enough to matter. It seems to be just the opposite of regular leveraged ETFs that decay rapidly during times of high volatility and very little during times of low volatility. But I must confess that I don't understand this behavior because these volatility ETFs have not been around long enough to witness what happens during a full economic cycle. SVXY which normally has inverse decay during low volatility is having decay now. It makes you wonder if their is a volatility inflection point where the decay reverses direction. I'm not suggesting this is the case but at this point I won't say that it isn't the case either. In my mind you have to be open to all possibilities if you don't want to get caught holding the bag.
You know who says his retirement accounts are all gold yet the world is going through a massive deleveraging phase so much so that European central banks are lending money with negative interest rates to stave off deflation. What does gold do with inflation? It rises. What does it so with deflation? It goes down. It seems like all the evidence is that with deflation ahead that gold will go down in value as it has been doing but he has concluded that it will go up. Why? Obviously not because he understands the economic direction of worrld economies and what is driving it. It's probably simply because he thinks because it has gone down that it must reverse in direction and go back up which is a pretty lame reasoning. It shows a complete lack of recognition of the deleveraging phase the world is in. He needs to go to Amazon and read up on the economic theories relevant to what's going on in the world. Because right now I think he's sticking his finger in the air and thinking to himself "that way". Yet there is a very logical explanation for what is going on and it doesn't lead anyone to conclude that it is time to buy gold if you understand current affairs.
No, China has entire cities where you can take a picture of the freeways running through them and there are no cars on them.
This is the problem I have. These panels and the cost to install them keeps dropping rapidly. So Solar City leases a solar system that is dropping in value faster than they get paid for it. How can that be a wise business model? How will solar city keep charging customers for expensive installs when there are much cheaper installs a few years down the road? What keeps a customer from not moving on when panels decline in price. For example. I can assume that panels will be much cheaper in 5 years so I decide to lease from solar city for 5 years then tell them to get their panels off my roof and buy a much cheaper system. And if solar city has a clause preventing me from doing that then why would I sign the contract knowing that I'm buying in high for a very long time? Would not this like leasing a personal computer for 10 years when 3 years later the slower computer, relative to newer ones, will no longer run modern software without significant lag? If they can't get their money back in 5 years then how does this work? Even the clueless customer will do what he sees his more mathematically adept neighbor doing.
No matter what? You cant build fake cities with no one living in them forever. At some point it had to stop. All this says is that much of the growth that China enjoyed was phoney. This was going to happen, if not now then a few years from now but it had to happen. Exports to China are 1% of our GDP which is insignificant so why would anyone care? Because they think that China is and indicator of world economic health but is it? How can you call an economy whose internal bubbles are popping an indicator of world economic health? Personally I don't think a lot of people see China for what it is. A disaster. Only their production export numbers mean anything to us but their stock market is influenced by many more things. You can look at their export numbers and pretty much ignore everything else. Commodity suppliers such as copper mines who supply copper to wire fake cities in China are hurt by these bubble pops. What would be interesting to know is just how much of this is impacting world growth in other areas. Obviously construction equipment sales to China are probably lower. So we aren't feeding the bubble as much. It wasn't real. I don't think most see this for what it is.
It's clear from reading your post that you convince yourself into making decisions based on assumed outcomes that have a weak logical basis for occurring. In other words you could think of as many reasons why the opposite would happen but you didn't consider those reasons as important. You need to be more skeptical of your own theories. For example, right now there is no clear indication of an oil bottom and oil producing countries are desperate to pay their bills and US drillers are surviving off of cheap to borrow money. I've read many articles that indicate that this situation can go on for much longer than people might imagine. So there is no compelling reason to predict a bottom now. But I think you have. Based on what? No one should be so sure about this to make a move now. Only reckless investors are buying oil now. And the best they can hope for is to get lucky. Sometimes that happens but it not reliable.
That's why the prediction game doesn't work with this stock because short term volatility is unpredictable. But if you wait for the VIX to get to unsustainable levels and short you are basing your investment on long term volatility which is more predictable. None of these predictable economic events influence short term volatility in a time frame that matters. The only thing predictable is that if the VIX gets too high is that it will go low again in a reasonably short time frame. Everything else is random.
Except he's wrong about the s&p 500 pe. Is now 20 which is still high. However much of the years that dominate the mean value are from when companies were lower growth than they typically are now.
Would that be the largest percentage drop in a single day for the DOW in history? Not my expertise but I think a 1000 drop in a single day would be getting close if it wasn't. So I'm doubting it. However the Ndibari indicator is pretty compelling.
The markets are getting spooked by these world wide economic conditions. Seems investors are looking very far into the future this time around. The unemployment numbers aren't even starting to look bad and the market is already acting like they are. I'm not sure if the market would be this forward looking if Europe and China were not acting like they are giving us a preview of what is to come here. It kind of makes you wonder if one even wants to short again until we actually do start going into a recession.
Now it's time to start paying attention. This is the most important economic indicator. If it keeps getting worse then the market is going to tank.
Hillary Clinton is dismayed for sure. If jobless claims keep rising then it will only be a matter of which Republican. Because we haven't even recovered from the last recession and that won't bode well for creating confidence in how their policies impact the prosperity of Americans. Obviously this is a world wide event but most people aren't that smart and the US is a dominate influence on world economic prosperity.
It was not normal for oil to be correlated with stocks which only happened recently. There is no reason for them to be correlated.
I exit with trailing stops. This is a short term play and it is never clear at any point in time where this stock is going, if lower or higher. So I just let it stop out on its own. That way I don't get caught up in circular arguments as to why I should hold longer or sell now. I start off with a 25% trailing stop, then lower it to 20%, then 15%, and then 10% until I'm stopped out. With this approach I can never lose more than 25% but since I short when the VIX is very high is always drops by more than 25% before I get stopped out. I was stopped out today.
If the market keeps getting more volatile then at some point I will stop investing altogether and wait for the next recession if that is what is causing this. This market is looking very much like 2007.
In the 4th quarter 2014 retail revenue growth was 4%, in the 4th quarter of 2015 it was 2%. These numbers might get revised up but it is not looking good. Then KORS reports good earnings and its stock pops 18%. So go figure. There is no clear picture of what is going to happen next. But it doesn't feel nearly as good as it did a year ago.
What amazes me is that most people are still sitting in their 401k plans like nothing is going to happen as if none of this was going on. I guess it is a distraction to them to understand what is going on and more of a distraction to actually make a decision based on that.
I'm currently 100% cash. I'm not making any money but I'm not losing any money either. One thing I have learned is to not feel compelled to have your money in an investment if it is not. Sometimes it is better to just wait. It's not like we have inflation to erode its value.
that if you are looking for those spikes that triple the value of TVIX that those only occurred in the past when the VIX was sitting at a value of around 12.5, which is VERY low, and then any amount of volatility at all looked massive by comparison. Now the same amount of volatility doesn't look so high relatively speaking because the VIX never gets that low anymore. So volatility in the 20s is not going to have the same effect as it did before because you are already half way up the mountain. Everyone needs to lower expectations, both longs and shorts because, we both make more when the VIX starts from a lower starting point. Because the ratio of the peak to valley is much larger. I am not expecting to make as much on this stock as I have in the past. It is important to realize this or you may come up with unreasonable exit points that you never hit and this never make money.
Actually, TVIX seems to be acting more normal of late. Normal behavior for this stock is to see short spikes up with longer periods of declines between the size of the declines exceeding the size of the spikes up. The last 5 months have been the aberration.
We have trade imbalances with Europe too. The entire world keeps stashing dollars in their central banks so as to devalue their currencies making it harder for the us to compete. The Republicans didn't realize that free trade only works when trade is fair and the Democrats want to kiss everyone's #$%$ so they look the other way. The end result is that middle cl#$%$ jobs disappear to other countries. No one has decided to put an end to currency manipulation by punishing countries that don't trade back our currency. An inflated dollar is what the rest of the world wants so it's easier for them to take our jobs. Imported products are too cheap. So we cannot compete. And they would not have it any other way and we don't stop them from screwing us over. We just act dumb.