Trading volatility

Volatility futures are typically in contango (S&P bull market) with some backwardation periods (S&P bear market). There is a reason to trade long volatility on market peaks when (a) there is no QE in US and (b) when the contango is relatively flat, and inverse volatility on market corrections otherwize. Flat volatility contango is also associated with relatively high systemic loss.

Here we can see the updated volatility resources. This article explains the basics of trading volatility and current volatility status. Typically it makes sense to hold inverse volatility, however once the VIX futures reach a certain level – somewhere above 20 – the contacts tend to slip into backwardation and it makes sense to hold long volatility futures. In any case due to violent swings of volatility it is best to avoid leveraged volatility products (like TVIX), unless for daytrading/scalping.

Here is another article on the same subject.

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