If you pay attention and are prepared to act in the next bull market, it will mean the biggest potential options profits of your life.
It’s not the first time I’ve written about this type of bull move. Click here to find this bull market inside the current market bloodbath.
In late 2019, I wrote an article about “the next bull market,” and described the VIX volatility index.
At the time I said, “The VIX had just hit historic lows around 10 and the market was climbing toward all-time highs. Low stock volatility means that investors are not fearful about the future prospects of the market.”
At that point, stock volatility had not been at levels that low since early 2007.
Today, options sellers have a huge opportunity . . . to exploit the next bull market in volatility.
To benefit from this long-term trend in stock volatility, you need to understand basics of the volatility index.
Let’s discuss the VIX and how it works . . . in simplified terms.
The Chicago Board Options Exchange’s Market Volatility Index, or the VIX, measures the implied volatility of the S&P 500 index, representing investors’ expectations of volatility in the S&P 500 over the next 30 days. Higher VIX values indicate anticipation of higher stock market volatility, while lower VIX values indicate the expectation for lower stock market volatility.
With stock markets tending to “take the stairs up and the elevator down,” as the old saying goes, higher stock volatility is associated with lower prices most of the time. So, if investors think equities are going lower, they think the move will be accompanied by increased volatility, and therefore will be willing to price the VIX or volatility higher.
Basically, low volatility reflects investors paying less for future downside protection. Paying less for downside protection means investors are less concerned about the possibility of downside . . . so low volatility means investors are becoming more “complacent.”
It’s kind of like a person foregoing hurricane insurance because there hasn’t been one in several years. Their recent good fortune of no hurricanes destroying their house has made them complacent about the possibility of future hurricanes.
So indeed, a low VIX represents a certain amount of complacency and lack of awareness of possible downside among investors in equities. And historically when we see extremely low volatility like what we saw in 2019, a push higher in the VIX is right around the corner – which means equities could experience a downdraft.
The New Options Bull Market
But the downdraft in equities should lead to a tremendous opportunity in volatility.
This is why, in my opinion, I think we are entering into a new bull market . . . a bull market in volatility. The question is, how can we take advantage of this bull market in volatility?
As you can see in the chart above, we’ve seen two other instances over the last 30 years where volatility hit all-time lows only to rally for the next six to ten years.
Volatility is back, and while most investors are fearful and more importantly, losing money, options sellers are confident and making money. We love a stock market bloodbath!
In 2020, most investors have lost money. I can proudly say that we have been making tremendous gains in 2020. If history does indeed repeat itself, we could be in the early stages of an incredible opportunity for options sellers.
The last time we saw volatility hitting new highs, my trades delivered total gains 363%. The S&P returned 1.38% that year.
The same thing could happen in 2020. Don’t miss out!