{"id":42676,"date":"2013-10-03T05:35:55","date_gmt":"2013-10-03T09:35:55","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=42676"},"modified":"2013-10-03T05:35:55","modified_gmt":"2013-10-03T09:35:55","slug":"the-smartest-trade-for-the-next-30-days","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/10\/03\/the-smartest-trade-for-the-next-30-days\/","title":{"rendered":"The Smartest Trade for the Next 30 Days"},"content":{"rendered":"

By WallStreetDaily.com<\/u><\/a> <\/p>\n

Well, so much for tradition.<\/p>\n

Historically, September is the worst month for the stock market.<\/p>\n

Except for September this year<\/em>, that is.<\/p>\n

The S&P 500 didn’t decline, as is the norm. It rose by 3%, instead.<\/p>\n

Does that mean it’s time to rejoice? Not quite…<\/p>\n

Before we get to what are historically the “best six months” for the stock market (November through April), we have to live through October.<\/p>\n

And you know what October is?<\/p>\n

It’s officially known as the “crash” month. And deservedly so, too.<\/p>\n

Precipitous declines occurred in October of 1929, 1978, 1979, 1987, 1989 (on Friday the 13th, no less), 1997 and 2008.<\/p>\n

Given such a dreadful history, and the fact that some financial models suggest that it could even happen again…<\/p>\n

(In fact, the highest probability of a “Flash Crash” will occur on Friday, October 18 at 2:04 PM EST.)<\/p>\n

So should we hightail it into cash and call it quits for the next 30 days? <\/a><\/p>\n

Not a chance! We should do this, instead…<\/p>\n

Heed the Numbers, Not the Headlines<\/b><\/p>\n

It\u2019s no surprise that October gets a bad rap, given all the crashes that have occurred throughout history during that month.<\/p>\n

But the truth is, October is not<\/i> historically a bad month for stocks. Quite the opposite, actually.<\/p>\n

Over the last 20, 50 and 100 years, the Dow has actually averaged positive<\/i> returns. Take a look:<\/p>\n

\"\"<\/p>\n

The takeaway? Stocks might be prone to sudden crashes in October. But they bounce back quickly.<\/p>\n

That means we want to stay fully invested and simply ride out any selloffs \u2013 because ugly selloffs seldom last long.<\/p>\n

And in the rare event that they do persist, our protective stops will limit our losses.<\/p>\n

So am I saying the smartest trade for the next 30 days is to simply stay invested?<\/p>\n

Well, that would be a tad anti-climactic, wouldn\u2019t it?<\/p>\n

So let\u2019s proceed to the trade I want to share with you today\u2026<\/p>\n

A Volatile Situation<\/b><\/p>\n

Aside from a higher frequency of stock market selloffs, October is also notorious for increased volatility. Perhaps it\u2019s because everyone\u2019s petrified of another 1987-style crash.<\/p>\n

But whatever the cause, it doesn\u2019t matter.<\/p>\n

Even if stock prices end October higher than where they started, prices are going to swing wildly on a day-to-day basis. And that\u2019s going to manifest itself in the VIX Volatility Index.<\/p>\n

A CXO Advisory study on seasonal patterns of volatility found that October is, indeed, the peak month.<\/p>\n

As you can see, the VIX spikes to an average level of about 23 in October. That compares to a long-term average for the entire year of about 20.<\/p>\n

\"\"<\/p>\n

And herein lies our opportunity\u2026<\/p>\n

The Best Way to Profit From Market Volatility<\/b><\/p>\n

Presently, the VIX trades at 16. So if this month pans out to be just an average<\/i> October, we can expect the VIX to rally about 40% above its current level.<\/p>\n

Given the government shutdown and looming debt ceiling debate, it\u2019s perfectly reasonable to expect a sudden spike, too.<\/p>\n

We can easily capture the majority of this upside by purchasing the iPath S&P 500 VIX Short Term Futures ETN<\/b> (VXX<\/a>).<\/p>\n

Since 2009, this exchange-traded note has boasted an 88.5% correlation to the VIX, according to Russell Rhoads, an instructor with The Options Institute at the Chicago Board of Options Exchange.<\/p>\n

This means that if the VIX spikes 40%, we can expect a roughly 35% profit.<\/p>\n

Not bad for a one-month haul. But we can actually do better.<\/p>\n

Since we\u2019re making a short-term speculation on the VIX spiking, we might as well get a bigger bang for our buck, right?<\/p>\n

Well, we can do that by putting the powers of leverage to work for us by buying options on the VXX. Specifically, the November 2013 $15 calls. They\u2019re cheap, trading right around $100 per contract.<\/p>\n

According to Rhoads, the VXX \u201coffers a good short-term trading vehicle to gain exposure to a potential spike in volatility.\u201d By extension then, options on the VXX are an even better bet.<\/p>\n

Let me prove it:<\/p>\n

Yesterday, the VIX spiked by 4.5% around midday to 16.22. But the November $15 calls shot up by over 15%.<\/p>\n

So by going with the options on VXX, we\u2019re talking about the possibility to make a couple of hundred percent if October is simply an average month, volatility-wise.<\/p>\n

Bottom line: The smartest trade for the next 30 days is to bet on a sharp uptick in volatility. Consider this your call to action.<\/p>\n

Ahead of the tape,<\/p>\n

Louis Basenese<\/p>\n

The post The Smartest Trade for the Next 30 Days<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

Article By WallStreetDaily.com<\/u><\/a><\/p>\n

Original Article: The Smartest Trade for the Next 30 Days<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com Well, so much for tradition. Historically, September is the worst month for the stock market. Except for September this year, that is. The S&P 500 didn’t decline, as is the norm. It rose by 3%, instead. Does that mean it’s time to rejoice? Not quite… Before we get to what are historically the … <\/p>\n

Continue reading “The Smartest Trade for the Next 30 Days”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-42676","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/42676","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=42676"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/42676\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=42676"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=42676"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=42676"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}