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If you pay attention and are prepared to act in the next bull market, it could mean the biggest potential options profits of your life.
It’s not the first time I’ve written about this type of bull move.
Earlier this year I wrote an article about “the next bull market.” At the time I said,
“The VIX had just hit historic lows around 10 and the market was climbing towards all-time highs. Low volatility means that investors are not fearful about the future prospects of the market. And as you can see below, it is plainly evident in the investors’ fear gauge, otherwise known as the volatility index, or VIX. In fact, we haven’t seen levels this low since early 2007.”
Well, seven months later the S&P 500 continues to make new highs every day while volatility hovers near historical lows.
Esteemed analyst Jason Goepfert sums up 2017 quite well in his recent quote:
“This will surely go down as one of the oddest years in market history, and those oddities keep piling up. On a day that more than 10% of securities on the NYSE and Nasdaq exchanges hit a 52-week high, the Nasdaq Composite slumped more than -1%. That has happened only 6 times in 30 years, almost all in 2003 and 2004, and once in 2013. Stocks struggled over the next two weeks, but we’re not reading anything into this other than it’s yet another brick in the ‘this ain’t normal’ wall that’s built up this year.”
For options sellers, 2017 has been a bear market of sorts. It’s been a tough road with volatility so low; market anomalies abound. To think the Dow tacked on over 1,000 points in just under 30 days is astonishing, but to think this type of rally is going to continue is, well, foolhardy. Just look where we’ve come from since those dismal lows back in 2009.
But 2017 has offered bulls something special. After nine straight years of gains, 2017 has seen the major market index spike higher. In fact, we’ve seen one of the largest 12-month moves in the entire history of the S&P 500 . . . an incredible rally of 41.36%.
Remember, we are not talking about a small-cap stock, we’re talking about a basket of the world’s largest and most stable companies. It’s unprecedented.
But the rally is stretched. As you can see in the chart below, we have now entered territory never before seen (a common theme in 2017). The duration between two 3+% one-day declines now stands at record high of 268 trading days. The record was 266. In fact, this is the first 12-month period in the history of the S&P 500 without a 3% drawdown.
But as we all know, we face an overwhelming number of signs of an overheated market. Just look at the RSI (14) below. We haven’t seen an overbought reading this high in well over 20 years. That’s right, 20 years.
With stock markets tending to “take the stairs up and the elevator down,” as the old saying goes, higher volatility is associated with lower prices most of the time. So, if investors think equities are going lower or will enter a period of stagnation, investors should always think the move will be accompanied by increased volatility, and therefore should be willing to expect higher prices (premium) in the VIX and major market indexes.
In simple terms, low volatility reflects investors paying less for future downside protection. Paying less for downside protection means investors are less concerned about the possibility of downside . . . so low volatility means investors are becoming more “complacent.”
It’s kind of like a person foregoing hurricane insurance because there hasn’t been one in several years. Their recent good fortune of no hurricanes destroying their house has made them complacent about the possibility of future hurricanes.
So indeed, a low VIX represents a certain amount of complacency and lack of awareness of possible downside among investors in equities. And historically when we see extremes in low volatility like what we are seeing currently, a push higher is right around the corner – which means equities could experience a reprieve.
New Options Bull Market
But a reprieve or range-bound move in equities should lead to a tremendous opportunity in volatility.
This is why I think we are entering into a new bull market . . . a bull market in volatility. The question is, how can we take advantage of this next bull market in volatility?
As you can see in the chart above, we’ve seen one other instance over the last 20 years in which volatility hit all-time lows only to rally for the next five to seven years. I expect the same result this time around as well.
When volatility does return, options sellers will be once again confidently making money in a consistent basis. Heck, as long as we don’t see another historical year of gains, options sellers will once again confidently make money in a consistent basis.
Has the bull market in volatility started? Not yet. We’ve certainly seen it pop briefly recently, but the focus of my research is to show you how to benefit from what will be a long-term trend in volatility. It’s a trend that has paid off for options sellers for extended periods of six to ten years.
That’s why I’m hosting a live event dedicated to the options strategies I prefer in slightly bullish, bearish or sideways markets.
Whether Day 1 of this bull market is tomorrow, next week or next year, the information I will present will show you, step by step, how to best profit from the inevitable trend of higher volatility. Click here for more information.