All eyes in the weeks ahead are going to be fixed on volatility as the market wonders whether rate rises and political hi-jinks can hurt confidence. For risk seeking traders the iPath S&P 500 VIX Short Term Futures TM ETN (NYSEARCA:VXX) may offer the perfect way to play the “storm” that may be about to hit the stock market.
On Friday morning the ETN wasn’t exactly hitting highs. In fact over the last three months the ETN has lost more than 18 percent of its total value. In the longer run the index has been an even worse performer. Over the last five years
Looking to push up volatility
Traders have complained about a lack of volatility in the market for years. They’ve blamed the problem on many disparate factors, like Fed actions and more and more money flowing into funds that invest in the whole market. Academic studies have only found mixed evidence for these factors. The volatility lull remains a mystery as a result/
For traders low volatility can be a problem because it reduces the gains made in event-driven trading. Event trading is very important in options markets, for example. Traders may soon begin to expect the steady raising of interest rates over the coming months.
Political risks could be the second element that spurs the market out of its volatility low.
Politics will hit the iPath S&P 500 VIX Short Term Futures TM ETN
Whether or not you think that the president has much influence on the economy, the current chief executive is likely to hit volatility over the next couple of years. The US Senate held its first major anti-Trump vote this week, an attempt to put the Russia sanctions in law, and that may just be a taste of what’s to come.
In the next couple of weeks the Senate will try to pass its version of a health care bill. If Democrats get creative in obstruction of the bill, that could mean a return to a stalled Congress for many types of legislation. That would go along with the ideas of many investors who feel the market is underweighting the chances of a government shut down this year.
On top of that the continued investigation into the President of the United States may bring its own volatility. Markets have settled into the idea of having President Trump at the helm, but his presence may become wholly negative in the coming months.
As the investigation picks up steam, Republicans may begin pulling away from the President and his agenda. That means the promised tax reform may never actually emerge.
When markets get rocky, the iPath S&P 500 VIX Short Term Futures TM ETN (NYSEARCA:VXX) starts rising. Those with money in the ETN start to rake in money. Over the last few years, since the launch of the fund in reality, that hasn’t really happened.
Lots of traders have been burned in recent years as bets on volatility spikes failed to amount to anything. That makes putting money on the iPath S&P 500 VIX Short Term Futures TM ETN (NYSEARCA:VXX) a very risky bet. With the current Fed and political momentum, however, 2017 may be a very volatile year.