Friday, January 14, 2011

Investing In Volatility

The VIX currently sits at 16.39.  Raise your hand if you think high volatility is going to return to the market in some shape or form in 2011.  [raises hand]

Luckily, over the last year many new products have been released that allow for investors to use volatility-based funds in their portfolios.  However, caveat emptor!  Most of these funds are designed for the day-trader or short-term investing populations.

There are new volatility-based products entering the market weekly at this time, but this article presents the current best options for investors, depending on your investing style.  Personally, I bought VXZ recently as a way to be positively exposed to increasing volatility.  In addition to my opinion that volatility is going to mean-revert and head higher at some point, the main idea here is that since my portfolio is substantially net long, if a negative event (think muni default, European sovereign default, etc.) occurs, my portfolio will likely take a large hit in the short-run.  Volatility will also increase if a negative event occurs.    Since these asset classes are negatively correlated in "bad" states of the world, overall portfolio performance should improve.

No comments:

Post a Comment