Vance Harwood @6_Figure_Invest Feb 18, 2017
http://www.barrons.com/articles/putting ... 1487399145
Putting Low Stock Volatility to Good Use
Tips from a veteran trader on strategies to benefit from the rally without risking too much in a downturn.
By BILL LUBY
Feb. 18, 2017 1:25 a.m. ET
Investors often struggle in high-volatility environments, when emotions assume an exaggerated role and trades are strongly influenced by instincts and gut feelings–usually with disappointing results. In the options market, everything looks ridiculously expensive when volatility is high. But even then it’s difficult to determine what is overpriced and what is cheap because it’s not obvious when the crisis at hand will wind down.
So, if high volatility is a challenge, then shouldn’t low volatility be easy pickings? Not so. Where high volatility raises anxiety and fear, low volatility tends to heighten wariness and suspicion.
Statistically, it turns out that the vaunted mean-reverting aspect of volatility is much more likely to kick in with a high VIX than a low VIX. Similarly, low volatility tends to cluster and persist for extended periods, defying skeptics. Specifically, when the VIX dips below 12 for several months, the historical record shows it can be expected to continue with similar readings for two years or more.
Wariness aside, low volatility begets low volatility and is generally bullish for stocks.