That was quite the interesting trading week was it not? Up until Wednesday, the markets looked as if it was going to be just another earnings week with major retail chain operators like Target (TGT) and Wal-Mart (WMT) reporting their Q1 2017 results. But things took a turn for the worse on Wednesday and after it was reported that President Trump had possibly asked then-Federal Bureau of Investigation Director James Comey to stop an investigation into Russian interference into the U.S. presidential election. This threw a “monkey wrench” into the market as many feared the implications from such a reported claim. And it’s with that reported headline concerning President Trump that the Dow fell over 300 points on May 17, 2017, taking the S&P 500 and Nasdaq indices down with it. But one index did rise and rise at a rate it had not seen in nearly a year, the VIX. The chart of the VIX below helps to recap the week that was.
The CBOE Volatility Index or VIX was up about 46%, at 15.59 on Wednesday. That is its biggest daily move since June 24 when the index jumped 49.3%, according to FactSet data. You might recall this was the first trading day that followed the Brexit Vote and found global equities pressured mightily as a result from the vote.
Sitting in the driver’s seat of the Golden Capital Portfolio that invests heavily in volatility from the short side, one may initially think the spike in volatility expressed last Wednesday would have caused me great concern, even pain. To the contrary, however, such volatility events are actually those I long for…get it, long for? Don’t worry; the jokes get worse as we go along. But in all seriousness as someone who shorts volatility it should be extrapolated that higher volatility brings with it higher prices for VIX-leveraged ETPs and thus an opportunity to short from such higher prices. “But what if things surrounding the President Trump/investor sentiment situation worsened”? That’s a great question and one I certainly pondered myself. Before answering that question more publicly though let’s quickly review my activity going into and following the Brexit Vote. Yes, vote is capitalized as it became a proper noun in my books.