Is this ideal market conditions to play TVIX?

Youda04

Market has been really choppy and volatility has been picking up early this year. VIX is at $17.22 (given that its under $20 it seems more probable to increase which means S&P is more probable to decrease due to inverse relationship). Also, 52 week high and low of TVIX is $11.80 and $2.01 respectively (so TVIX seems more likely to increase vs. decrease). Does it seem like a good time to play TVIX?

markd

Personally, I wouldn't touch these things - but that is a personal quirk and in no way a criticism of those who like them. But I have reservations. It doesn't have intrinsic value - it's price depends on the behavior of other instruments - so I'm not sure traditional technical analysis applies to the TVIX chart. It also has tremendous leverage, which can cut against you as well as for you, especially at the low prices it's trading at currently. It might be a good hedging tool if you want to hold on to a portfolio of long positions, maybe for tax reasons, through a possible down turn. If you want to trade it as a pure play, just for fun, I think you would want to keep your positions small.

As for timing, there are no definitive bearish indications yet. We are in a range since December, but no support has been broken since the most recent new high. So far, big breaks have been met by strong buying (October, December). On the other hand, we've had trouble making new highs since December - the fourth week of December made tiny range compared to it's volume, so sellers are capping progress. But for a meaningful decline, sellers have to break support (third weekly bar of December) and then we have to see a weak buyer response. Until then at least, I would lay low on the TVIX. Keep in mind this just an opinion from someone who doesn't trade 2x or 3x instruments. It would be great to get an answer from someone with relevant experience.

Kevo

$VIX started to trend higher since early December. It is still trending higher for what reasons and how long, I am not sure. I suspect the why has to do something with Inter-market and International reasons.

I do not believe $VIX is a dollar figure. It is an index. TVIX is however based in dollars.

TA does work for Volatility. I would keep my holding time brief, and keep a watchful eye on momentum and OB/OS.

Like markd says, I also think it is used for hedging.

$VIX is a breadth indicator. $VIX complements other breadth indicators. It seems to me trading volatility is a specialized skill.

Kevo

From casual reading, it seems the driving force behind volatility so far this year likely has to do with global central bank action/in-action uncertainty regarding QE and/or raising rates. I don't understand this or the reasons why it drives volatility. Just FYI.

markd

Central bank decisions have become more discretionary, and so less predictable.

A non-discretionary central bank says, we will raise or lower rates to maintain price stability (e.g. gold at $1000 an ounce, or an index of commodities (gold, oil, wheat, etc.) at some level, or within some range. Then every one can make a reasonable guess at what interest rates will be as the supply and demand for those commodities rises and falls. This results in a gradual change in prices because different people take more or less time to make up their minds, and so don't act all at once.

A discretionary central bank (like just about all of them right now) says, we will raise or lower rates depending on what we think is best for the economy. The problem is, no one can read their minds. Everybody makes guesses, but nobody knows until the banks make their announcements. Then everyone has to act at once to adjust their positions to the new situation.

For a trade to happen, people have to agree on price but differ on future value. When the bank announces, there is much, much less disagreement on the future direction of prices, so prices move almost directly to the new value.