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2022 is shaping up to be the year of volatility.
Thursday's rout sent the Nasdaq, S&P 500, and DOW tumbling 4.99%, 3.56% and 3.12%, respectively - but it also sent the CBOE Market Volatility Index (VIX) up as much as 31.47% in the same session. By Friday morning, the VIX had jumped another 10% in early trading.
In fact, it's risen 75.36% since April 21. And it's easy to see why.
At this point, the majority of headlines are negative: The Fed raised rates by 50 basis points, the economy contracted in the last quarter, and fears of a recession are looming. China's "zero-COVID policy" is wreaking havoc on their domestic economy - and the global supply chain of goods manufactured in China. The war in Ukraine shows no signs of letting up, and stocks that miss estimates are getting absolutely hammered.
All this may frighten timid investors, but I see it as a huge opportunity - not by looking at individual stocks, but by playing the VIX itself.
You see, you can trade call and put options on the VIX directly, and investors who are good at market speculation can often ride its ups and downs to quick profits.
The smart play right now is to get in on a put spread while the VIX is high and wait for even a small bit of good news to send it plummeting, then cash out.
It's that simple - let me show you exactly what to do...
Riding the "Fear Index"
In case you're not familiar with the VIX, it is, simply stated, a real-time market index representing the market's expectations for volatility over the coming 30 days.
In even simpler terms, when volatility increases, investors start getting scared - that's why the VIX is commonly referred to as the "Fear Index," or the "Fear Gauge."
The VIX isn't a stock or an ETF, it's merely a gauge of expected volatility (or fear), and volatility (or fear) tends to dissipate quickly when any good news shifts sentiment.
When that happens and expected volatility goes down, the VIX drops a lot, very quickly.
Given the current environment, it will only take one less-bad headline to shift sentiment (even if just for a few days) to the positive. If that happens, the VIX will collapse, and that would give an opportunity for a quick triple-digit profit.
Here's how I like playing it.
If the VIX trades above $35 by May 13, I like buying the VIX May 25, 2022 25/24 put spread for $0.40 or more. Plan on selling the spread for a 100% profit.
It's more important than ever for investors to find solutions that can help them profit on the big market swings we've seen this year. As interest rates rise and the market teeters, banks are one area where folks are taking refuge.
But we've identified two other key market sectors where a new flood of buying is going to create opportunities for potentially massive profits, especially in small-cap stocks that often get overlooked by the major players.
I have a strategy to narrow thousands of these stocks down to the few with the biggest potential to be the next market winners.
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.