Share This Article

Facebook LinkedIn
Twitter Reddit
Print Email
Pinterest Gmail
Yahoo
Money Morning
×
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • AI Investing
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
  • Retire
    • Income Investing Guide
    • Retirement Articles
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
    • Postcards
Login Archives Your Team About Us FAQ
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • AI Investing
    ×
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
    ×
  • Retire
    • Income Investing Guide
    • Retirement Articles
    ×
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
    • Postcards
    ×
  • Subscribe
Enter stock ticker or keyword
×
Join 100,000+ Like-Minded Investors Today
Twitter
Tags: Trading Strategies
Stocks: KNOW, NOW, PLAY

Now That You Know Volatility, Here's How to Play It

This expert insight from Shah Gilani originally ran in Wall Street Insights & Indictments on February 21, 2018

View Comments

Start the conversation

Leave a Reply Click here to cancel reply.

You must be logged in to post a comment.

Shah GilaniShah Gilani

Volatility comes in all shapes and sizes. It affects every stock, every market, and every asset class, everywhere around the world.

It can be your best friend or your worst enemy.

Either way, as Sun Tzu said, "Keep your friends close and your enemies closer."

But whether or not volatility is your enemy today, tomorrow, or next week, you have to know how to manage volatility in your trading.

Here's why you have to embrace volatility, how to see it coming, and how to trade it.

Volatility Comes in a Lot of Flavors

Volatility is every stock, every bond, every commodity, and every tradable instrument's constant companion, so make it your best friend.

Like I mentioned earlier this week, there are a couple of types of volatility and they all mean different things.

Inherent volatility is how much and how quickly the value of any investment or market increases or decreases.

There are two types of inherent volatility: the first is historical volatility, which is measured by calculating the historical standard deviation of annualized returns over a given period of time.

The other is implied volatility, which is the expected volatility that buyers and sellers price into an asset at the last or average price at which it trades.

Volatility can also be relative.

How volatile one stock is relative to another stock, where stocks can be substitutes for each other, matters. How volatile a stock is relative to the volatility of the market, measured as beta, matters. Changing volatilities of different asset classes in a portfolio, especially in risk-parity funds, matters.

Both inherent volatility and relative volatility matter.

Some investors shun volatility, while others, especially traders, seek volatility.

Volatility itself doesn't discriminate. It just does what it does, until it completely changes, and then it usually reverts to its mean.

That's the nature of volatility. That's why it's important to know the inherent volatility of investments you own and know how market volatility can affect your investments.

Knowing the inherent volatility of anything you own can be complicated or easy.

The Cryptocurrency Everyone Else Will Regret Not Owning: To See Tom Gentile's #1 Crypto Pick and Exactly How to Trade It, Click Here Now

The complicated way to know how potentially volatile an asset is requires you to do the math.

The easy way is to look at how it trades over calm market periods and stressed periods. You can really see its highs and lows and the swings it makes when comparing the two periods. You can measure the swings relative to the average price over each period, and you'll have a good general sense of how volatile that asset has been.

What's important about knowing and being comfortable with how inherently volatile your investments are is they are going to be impacted by larger market forces.

Understanding how they're reacting and how what's going on with market volatility can impact the inherent volatility and value of your holdings will help you make smarter buy, hold, or sell decisions.

I've been trading professionally for 35 years. And for me, the volatility of markets (and by markets I mean equity markets, bond markets, commodity markets, currency markets, derivatives markets, etc., especially when they are highly correlated) is more important than the inherent volatility of any single investment.

That's because market volatility, because of its impact on sentiment, on psychology, on fear and greed, will, especially in stressed times, move most assets as if they're tied together like climbers on a steep-faced mountain.

The mother of all market volatility measures these days is the VIX.

It's the "vol" measure to watch because so many important equities, so many portfolios, so many asset managers, so many asset classes, are in, tied to, compared to, or correlated in some way to the S&P 500, which is what the VIX is a volatility measure of.

I recently told you what's really causing the wild market swings, and when we last spoke I talked to you about volatility basics. Some of these concepts are heavy, but these articles will make sure you're not diving into the water without your floating device.

Tapping into the "Fear Gauge"

If you understand the VIX and can trade it, not only will you be able to make money from it, you'll better understand how everything in your portfolio trades. And the more you know about how things trade, the easier it becomes to make money trading them.

Here's how easy it is to follow and trade the VIX.

Here Are 10 “One-Click” Ways to Earn 10% or Better on Your Money Every Quarter

Appreciation is great, but it’s possible to get even more out of the shares you own. A lot more: you can easily beat inflation and collect regular income to spare. There are no complicated trades to put on, no high-level options clearances necessary. In fact, you can do this with a couple of mouse clicks – passive income redefined. Click here for the report…

Claim My Free Report

Shah GilaniShah Gilani

About the Author

Browse Shah's articles |

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.

… Read full bio

Subscribe
Login
Notify of
guest

guest

1 Comment
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
lorlyn
lorlyn
5 years ago

I remember last year I'm in the group of wall street I got use to join trade twice maybe.. It's was great.

0
Reply


Latest News

September 22, 2023 • By Shah Gilani

earnings
Why the Fed's "Higher for Longer" Message on Interest Rates is Bogus

September 22, 2023 • By Tom Gentile

This is the Top 'Worst-in-Breed' Stock Heading into October

September 21, 2023 • By Shah Gilani

earnings
The Best Auto Stocks to Buy (or Avoid) Right Now
Trending Stories
ABOUT MONEY MORNING

Money Morning gives you access to a team of market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

QUICK LINKS
About Us COVID-19 Announcements How Money Morning Works FAQs Contact Us Search Article Archive Forgot Username/Password Archives Profit Academy Research Your Team Videos Text Messaging Terms of Use
FREE NEWSLETTERS
Total Wealth Research Power Profit Trades Penny Hawk Midday Momentum
PREMIUM SERVICES
Money Map Press Home Money Map Report Fast Fortune Club Weekly Cash Clock Microcurrency Trader Hyperdrive Portfolio Rocket Wealth Initiative Quantum Data Profits Flashpoint Trader Darknet Alpha Accelerators Brutus Alerts Resource Traders Alliance L.A.U.N.C.H. Investor Rob Roy Trader Long-Term Equity Profits

© 2023 Money Morning All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning.

Address: 1125 N Charles St. | Baltimore, MD, 21201 | USA | Phone: 888.384.8339 | Disclaimer | Sitemap | Privacy Policy | Whitelist Us | Do Not Sell or Share My Personal Information

wpDiscuz