Volatility has been extremely low lately in US equity markets… for all the chartists and technical analysts reading, look at the Bollinger Bandwidth (BB) below.

The first graph shows the VIX (“fear index”) signaling a low in its own standard deviation. The BB theory says that periods of low volatility are followed by high volatility.

The second chart shows the S&P500 index. The last time it was this low was April, when it was followed by a move of +40 and then -60 in less than 10 days!

So what’s the point? Well, the point is that volatility may be just around the corner.

Trade idea: buy protection (like slightly in-the-money September VIX calls).

Tagged with:  
Share →