[Special Event] 3 High Probability Strategies to Trade VXX

3 High Probability Strategies for VXX/ VIX

Hey tribe,

Want to share something that seasoned investors and professional institutions look at… The yield curve.

The yield curve has been inverted for 628 days…. this is a record high!

Before this gets too technical… I am conducting a zoom session this Saturday, (25th may, 9am to 12pm Singapore Time) to share 3 Strategies I use to leverage on the current situation based on inverted yield curve and low volatility…. If you are a beginner, this is a very safe way to trade/ invest in the markets for profits.

You can register here to get the zoom link… The zoom capacity is limited though… so first come first serve.. https://us06web.zoom.us/meeting/register/tZYrfu-ppzMpHdBvx_8pjTPcW_85_mac-Ik5

This is an indicator to predict market crashes, and it has been highly accurate. Based on research posted on Nasdaq, the yield curve has preceded EVERY US RECCESSION.

What is a Yield Curve?

• Normal Yield Curve: Typically, when you lend money for a longer period, you expect to get a higher return because you're taking on more risk. Think of it like getting paid more to babysit for a whole weekend versus just one evening. So, normally, long-term loans (like 10-year bonds) have higher interest rates than short-term loans (like 2-year bonds).

• Yield Curve: A yield curve is a graph that shows the interest rates of bonds (loans) with different maturity dates. In a normal situation, this curve slopes upward because long-term bonds have higher interest rates than short-term ones.

What is an Inverted Yield Curve?

• Inverted Yield Curve: Sometimes, this yield curve flips upside down. When this happens, short-term interest rates are higher than long-term ones. It's like getting paid more for babysitting one evening than for the whole weekend, which seems odd, right?

Why Does This Happen?

• Investor Behavior: When investors think the economy is going to slow down or crash, they get nervous about the future. They start buying long-term bonds to lock in a safe return for a longer period. This heavy buying pushes the price of long-term bonds up and their interest rates down.

• Short-Term Rates Rise: At the same time, if the central bank (like the Federal Reserve) is raising short-term interest rates to fight inflation or cool down the economy, short-term rates go up. This combination of falling long-term rates and rising short-term rates causes the yield curve to invert.

Why Does an Inverted Yield Curve Indicate Market Crashes?

• Economic Slowdown: An inverted yield curve has been a reliable indicator of upcoming recessions (economic slowdowns). This is because it's often a sign that investors believe the economy will worsen in the future.

• Credit Conditions: When short-term rates are higher than long-term rates, it can squeeze banks' profitability because they borrow money at short-term rates and lend at long-term rates. This can lead to tighter credit conditions, making it harder for businesses and consumers to borrow and spend, which slows down economic activity.

• Historical Precedent: Historically, every recession in the past 50 years has been preceded by an inverted yield curve. While it's not a guarantee of a market crash, it strongly suggests that tough economic times are ahead.

In simple terms, an inverted yield curve is like seeing storm clouds gathering on the horizon. It doesn't mean the storm is here yet, but it strongly suggests that bad weather (a recession) is coming.

So… enter VXX

The VXX, or the iPath Series B S&P 500 VIX Short-Term Futures ETN, is an exchange-traded note designed to provide investors with exposure to the S&P 500 VIX Short-Term Futures Index Total Return. The VIX, often referred to as the "fear gauge," measures market expectations of near-term volatility as conveyed by S&P 500 stock index option prices.

Here are 3 strategies to trade VXX

1. Mean Reversion:

   • Theory: Volatility tends to revert to its mean over time. When VXX spikes due to a market event, traders may expect it to decline back to normal levels.

   • Strategy: Traders might short VXX after a spike, expecting it to drop as volatility normalizes.

2. Contango and Backwardation:

   • Theory: The VIX futures market is typically in contango, meaning that future prices are higher than the spot price. However, in times of market stress, it can move into backwardation, where future prices are lower than the spot price.

   • Strategy: Monitor the term structure of VIX futures. In contango, VXX may decline over time due to the roll cost. In backwardation, VXX might increase as futures prices rise relative to the spot price.

3. Options Strategies:

   • Theory: Options on VXX can provide leveraged exposure to volatility moves.

   • Strategy: Implement options strategies such as straddles, strangles, or spreads to profit from volatility changes. For example, buying a straddle can profit from large moves in VXX in either direction.

I will be sharing more at the weekend zoom. It is 100% and i will be covering pure strategies!

https://us06web.zoom.us/meeting/register/tZYrfu-ppzMpHdBvx_8pjTPcW_85_mac-Ik5 ‘

Together,

Next Level

Sean