FED MINUTES PLAY (oops!!)
First off I apologize for not updating beforehand so you all could join me in making money on SVXY. But for the future be aware that there is a great play when Fed Minutes come out. They always come out on a Wednesday at 2PM and usually the VIX moves higher leading up to the release, things go squirrelly after the release until about 30 minutes before the close and then the VIX rolls over and the market goes higher into Friday. So the play is buy SVXY (and/or UPRO) 30 minutes before the close on Fed Minutes day and ride it out until Friday just before the close. That is the trade I am currently into and am up 3% as I write this (I got in Thursday morning…too busy on Wednesday) and would be up almost 5% had I bought Wednesday. Remember this for the next Fed minutes January 8th 2014 (although the Government funding lapse for Jan 15th might hinder this trade so we will have to wait and see).
Why does the play work almost every time? It is the same for almost all of the scheduled macro events. The market simply fears the unknown. So it gets jumpy heading into the release, freaks out for an hour or so and then continues its normal trajectory. Knowing the news, even if it is bad, allows fund managers to take off their SPY protective Puts and either stay neutral or go long. How well has the Fed minutes play worked? The last 4 times the market has been up between 1.2% and 2.8% from Wednesday close to Friday close. Very nice.
Caveat to the following trades- Remember past is not certain to predict the future. December is a squirrelly month for VIX. Although it tends to stay very low it does pop up here and there for "random" reasons. Money managers do A LOT of window dressing and return chasing near end of year. Add on to that many people (incorrectly) think QE infinity could be tapered in December. This month will be tricky so tight stops and quick trades are a must. Viewer discretion is advised!! - AKA - don't gamble with money you are not willing to lose!
WHAT'S NEXT? DECEMBER JOBS RELEASE
The play is to buy SVXY less than 30 minutes before the close on Thursday Dec 5th. Buy a ton if the VIX is at mid 13's or higher, only buy a little if the VIX is still in the 12's. Sell SVXY between Friday Dec 6th and Friday Dec 13th. The sell dates are up to you and depend on your level of risk. Typically the VIX rolls over from that Friday through the following Tuesday but I don't think it will hurt to hold longer because there is no head winds to upset the market until the Dec 18th Fed meeting. Why Friday the 13th (besides it is a spooky day)? Because the VIX and market tend to react to FOMC meetings sometime on Friday before the meeting or the Monday before the meeting. To be safe, get out by Friday morning Dec 13th.
Buy SVXY Dec 18th before the Fed announcement approximately 30 minutes before. Sell from Friday Dec 20th until Tuesday Dec 24th. Historically it works really well up until Friday the 20th. Again, I think it can work up until Christmas eve this year so choose your path. People will fret, the news will be no taper and the VIX will roll over and show its belly.
END OF YEAR BOUNCE
Buy SVXY and UPRO Dec 31st and hold until January 10th or about 3% higher on S&P 500. For the past 4 years buying at the close on the last trading day has made you a 3% profit on S&P 500 by mid-January. Some years it rises exactly 3% and then pauses. Freaky. Depending on the level of the VIX determines how much SVXY vs UPRO you buy. The higher the VIX the more SVXY you buy and the less UPRO. I plan to put a very big chunk of my money behind this play. I strongly recommend starting to sell after a 2% gain on S&P and be completely out before we hit 3% gain. Like I said, one year it almost hit 3% to the penny and then reversed so waiting would have made you lose some of your gains. You should get a nice 6-10% gain on this play.
I say sell by January 10th because of the Government funding that ends on Jan 15th. I don't think the GOP will play games this time and I think the market will mostly ignore that date until we hit it anyways, but just to be safe sell early. Always minimize risk while maximizing gains. I would rather leave some % gains on the table then take the risk of losing my profits. There is nothing wrong with taking many smaller gains. If you always make a profit then compounding becomes your friend!
I will update if I see things change and on the trade days if I am able to.