Volatility Spikes Monday - Learn How to Profit From It | Volatility and the VIX

Follow us:

Twitter

RSS

Facebook

Volatility Spikes Monday - Learn How to Profit From It

The Fed Open Market Announcements are Critical for Investors to Understand

Investor fear can be measured and used to forecast where stocks may be going in the future. This is important today as investor fear or volatility within the S&P 500 (.INX) jumped more than 13% at the open. You can monitor levels of investor fear on a minute-by-minute basis through the Volatility Index (VIX) produced by the Chicago Board Options Exchange.

Review of Today’s Market Action

Essential Reading for Traders

Here is a selection of articles every successful investor should read and understand:

• What you should know before
   investing
• Understanding the Dow Jones
   Industrial Average
• Causes of the Credit Crisis
• Understanding LIBOR
• Relationship of trends in
   stocks, bonds and rates
• What Drives Mortgage Rates?
• Bond Basics
• Understanding a Recession
• Understanding the LIBOR/OIS
   Spread
• Smart Dividend Investing

When the VIX spikes traders get more concerned about risk control strategies and capital preservation. A big move up in fear or the VIX is typically accompanied by a large move down on the S&P 500 (.INX) and the Dow Jones Industrial Average (.DJI). Bonds are often rising with the VIX while yields fall.

A side benefit of a rising VIX is that option premiums will become slightly inflated. That is good for traders using short options strategies to reduce account volatility like short puts or covered call writing. You can learn more about those strategies here. Because the VIX is spiking today on bad consumer data, investors in retail stocks like Wal-Mart (WMT), Target Corporation (TGT) or Abercombie & Fitch (ANF) should be paying very close attention. You can learn a lot more about the VIX and investor fear from the videos below.