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Pitbull Trading
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Strongly believe in Nassim Taleb's theories. Have a strong focus on the market psychology and behavioral finance aspect of equity trading. Prefer longer term trades for best risk/reward profiles. Still believe Buy & Hold strategies can be relevant in the current market.
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  • VXX: Hedge your portfolio against Volatility  0 comments
    Nov 23, 2010 12:52 AM | about stocks: VXX, VXZ

    The market environment is such that at the current time it is very prudent to be either in a large percentage of cash or to hedge your porftolio against downside risk with VXX. VXX is a short term volatility tracking etf that can provide you with great benefits if used correctly.

    VXX is not for all investors and should be traded very carefully, it is never to be considered a long-term holding, but a short term tool to protect yourself against market fluctuations and potentially violent movements. The market has had a great run of late and it is time for a natural pullback among equities and likely commodities as well. There are potential economic storms on the horizon that take many various forms, check out Phil Davis' writing here if you want more information about those topics. 

    The point of this article is to get individual investors to think about the downside risk that is more obvious to me at this moment in time than any artificial upside movements by the manipulated markets and Mr. Bernanke's magic wand. If you cannot be in a decent percentage of cash right now (25-50% IMHO), then consider buying VXX to capture some gains on the downside and provide you with extra funds when we start to bottom out and deals are abundant again. 

    I generally always recommend scaling into positions, especially into things as tricky as VXX, and try to buy in larger chunks on the way down. Then you have to play things by feel and dont be too panicky one way or the other. Take good profits when they present themselves and try to use your patience on entering positions. Oh, and be picky, only take entries you KNOW are good in the pit of your stomach. It pays to be a sniper in this market and to not use a spray shotgun style of investing.

    Happy Holidays, and remember, were all in this to make money, don't let the bankers fool you.


    Disclosure: LONG VXX, continuing to buy
    Stocks: VXX, VXZ
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