There are many events during the year than may cause volatility in the markets to increase. Some, like economic numbers or earnings can be anticipated, while others cannot. Things like natural disasters, or terrorist attacks are unfortunately a part of the world, and not often predictable. This year, of course we have a Presidential election and many feel that the markets will experience increased volatility.
Some areas of the markets are already experiencing increased volatility. The volatility on the Mexican ETF is currently at its highest point in almost 5 years. This is naturally due to one candidate who wants to build a wall, along with many other things that could hurt the Mexican economy, as well as relations with the United States' southern neighbor.
So today's question is "What can you do if you too expect volatility to rise into the elections?" Is there a trade here, or a way to benefit from the potential increase in volatility? What if you don't want to participate, but want a hedge just in case things get out of control?
One of the first things you could do is to purchase put options, or put spreads. This could be done on individual stocks that you may own, a market index, or on volatility itself. Although you will have to pay for this type of "insurance", if you are correct and volatility rises, you could technically make money even if the markets only move a little. Some of the popular ETF's that people use for this type of strategy are the S&P 500
An even easier option is to just purchase shares of the VXX itself. Unlike the CBOE VIX Index, this product can be traded either by purchasing shares of the ETF, or utilizing the options on them. The VXX is a very active product and if volatility does increase you will not miss the move with the VXX. Side Note: It should be noted that the VXX is best suited for short term trading only. One should never consider a long term investment in the VXX without the use of an option strategy to help offset your cost.
These are just a few choices you have if you think volatility will increase due to the election. Of course you could just sit back and watch. There is one guarantee I can make to you and that is on the 9th of November this will all be over, at least for the next 4 years.
