The US equity market has some external forces (QE forever from the Fed, for example) that can distort the true climate of the market. One thing that I have adapted from this skewed climate is to look at the time structure of the VIX. Specifically, I look at the relationship between the one-month S&P volatility index (VIX) and three-month S&P volatility index (VXV). When the VXV trades at 1.2 times that of VIX, the S&P has not been able to hold its gains in the short-term.
So, how to play this? You can do a number of things. You can buy a SPY put or put spread, sell a call spread in SPY, or you can buy some sort of VIX/VXX bullish play.
But, the ETF space has opened up some very compelling opportunities. Let’s look at SDS, the ProShares UltraShort S&P 500. This fund seeks daily investment results that correspond to twice (200%) the inverse (opposite) of the daily performance of the S&P 500 (the Index).
I signaled to purchase the SDS June 22 Calls for .50. By buying the SDS calls, I am making a bearish play on the US Equity market that will perform at twice the rate as similar ETFs like SPY.
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