At the start of May 2019, we warned volatility could be a problem.
All as trade war fears continue to mount. In fact, as this is being written, Dow futures were set for another 230-point drop at the open on Thursday morning. That came after the press reported the U.S. was considering restrictions on Hikvision – a Chinese surveillance equipment provider – from buying U.S. components.
"The U.S. is considering cutting off the flow of vital American technology to as many as five Chinese companies, reported Bloomberg, citing unnamed sources, "widening the dragnet beyond Huawei to include world leaders in video surveillance. The Trump administration is concerned about their role in helping Beijing repress minority Uighurs in China’s west.”
If that’s the case, the move would mark further escalation in a troubling trade war.
Unfortunately, none of this comes as a surprise, as the two warring economic super powers go for the throat. And, as long as this continues we must be prepared for exceptional volatility, as we noted in the May 2019 issue of The Cheap Investor.
In fact, as we noted in that issue, we could use these trades to protect for downside.
The Top Ways to Protect Your Portfolio from Market Volatility
With markets sitting at record highs, the question I’ve received most over the last few weeks is, “How do we protect for potential downside if the rally begins to fall apart?”
The best way to trade that possibility is by protecting your portfolio by hedging volatility.
We can use opportunities including:
- The iPath S&P 500 VIX Short-Term Futures ETN (VXX)
- The ProShares Ultra VIX Short-Term Futures (UVXY)
- The VelocityShares Daily 2x VIX Short-Term ETN (TVIX)
Since the start of May 2019, the VXX for example ran from a low of $25 to a high of $32.
The UVXY ran from a low of about $31 to a high of $45. Even the TVIX ran from a low of $20 to more than $30. All are very likely to see a boost as the trade war intensifies.
For a test run of The Cheap Investor, click here.