Higher volatility has left traders and investors on edge. Big money is moving fast in today’s environment. If you get cold feet and leave the scene, you are likely to get pushed out for a long time. As long as your investing horizon is at least 10 years, here’s my advice:
Embrace the volatility and keep trading.
Why I’m embracing higher volatility
A high-volatility market that is driven by fear (bordering on panic) sets up some of the best buying opportunities ever. This happened after the big market crash in 1987, the dotcom bust in 2001 and the global financial crisis in 2007. The strongest names gets swept up in the market drops, allowing traders and investors to snap up some bargains.
I know you might be feeling nervous. But imagine if you walked away from your investments right as the market was about to turn? You’d be frustrated at best, devastated at worst.
Make no mistake: higher volatility is no walk in the park. As the price range expands, markets move up and down – sometimes a lot. Between February 24 and March 4, the Dow Industrials have moved by thousands of points six times (four were up and two were down). That’s enough to make anyone’s stomach turn over.
How to manage your trading
I constantly talk about buying insurance to protect your portfolio. With higher volatility, this is a must. To protect your portfolio, buy long put options, preferably on the indices (SPY, IWM, QQQ and DIA). You don’t need to cash them in. Their purpose is to blunt the effects of big volatility swings.
The volatility index (VIX) currently sits in the mid-to-high 30’s – a very high reading. Unfortunately, this makes put options more expensive. This isn’t likely to change anytime soon; markets are expecting more big moves up and down for the next couple of months (at least).
In the end, this too shall pass. Take advantage of great buying opportunities, and stay the course. It’ll pay off.
