Buying Opportunity In The VIX

May.27.14 | About: iPath S&P (VXX)

Summary

VIX closed on Friday May 23rd at 52 week lows.

Current economic outlook and market risk levels do not warrant such complacency.

Even in a minor correction the risk:reward ratio for going long volatility is 7:2.

The S&P 500 volatility index, known as the VIX, closed at 52 week lowas after Friday's trading. The current prices of VIX futures are less than 2 points above the all time low on the VIX of 9.39 in 2006, yet the degree of market risk does justify how complacent investors are at this stage of the market cycle. In the video below, I mention my thoughts on trading volatility, and why the current moment is one of the rare times where the risk to reward balance actually warrants buying volatility (NYSEARCA:VXX).

However, as a warning for anyone trading VIX, the best method is either VIX futures contracts directly or long dated options (>6 months) on these futures. VIX ETFs suffer from too much losses generated from decay and rebalancing to function as a good substitute.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.