S and P and Vix seasonal trade approachingS and P 500 2 Trends 2 Trades
Seasonal factors are beginning to show on S and P now. Over the last 20 years May to October periods have produced a
correction of between 5% and 41% in every year without exception. The average loss per period was 14.9%. For the last
7 years if you'd bought the S and P on 16th October each year and held for 6.5 months until selling on the last trading day of
April (before entering Vix positions in June for 3/4 months instead) and then buying again on October 16 the following
year and repeating the process every year since 2010 - that the S and P would have returned 1289 points and 100.4%
profit, rising from 1175 to 2390 (October 16 to end April 2017).
Interestingly, had you remained fully invested in the S and P over this ENTIRE period the return would have been 1215
points, 74 points less - so being invested in the S and P over just 6.5 months in each 12 month period yields HIGHER
returns than being being fully invested over the entire period. The stats are telling us something pretty clear here...smart
money lightens off after earnings season, it sells into strength, to the...less smart - and then buys back off the
same people come the Fall (no pun intended). There's a pattern here. It's time we all recognised it for what it is. And
maybe join in. Here's a fairly simple but winning strategy for Summer/Fall...
The other side of this trade was to buy the Vix each June and sell at 35% to 50% profit each time limit level is struck (limit
levels initiated at same time as purchase, which is itself an order to buy around 11.3 on nearest dated futures right now,
but will hopefully come a little lower still in June) - by playing this game each year over the last 6 years the Vix
would have returned a minimum of 50% on 6 out of 6 of those years - so 300% minimun return and the astonishing figure of
1132% return on 6 Vix trades when compounded.
Rather better than the flat returns offered by the S and P over the corresponding period.
If you get this, consider buying Vix futures (nearest dated) in June, seasonal low, for 3/4 months and don't be scared of it -
only be scared of the Vix from November to May...from June to October it's your friend - if you can treat it like a
schizophrenic and know when it's likely to go wild you'll get to like it more and stop running scared of it, that's the truth.
Downside is 10%, maybe 15% max from 11.3 on nearest dated Vix futures, but wait until June/July, as probability says that's the
best month to go long Vix - what other 'investment' can you make where the downside risk is close to certain (as certain
as you can be in any investment, at least), that cannot ever go trade to zero, and has beautiful seasonality just about to
come into play?
The other big secret to trading the Vix is not to bother chasing those highs. Only a fool would even try. Lower your
expectations and you'll get a near-certain result. Just be happy with between 35% and 50% returns over 3-4 months and
this trade will always work out (gotta factor in 3 to 4 months roll-overs costing 0.4 to 0.5% each time but that's fine. You
EXPECT that and you cover your backside with enough margin to handle anything up to 15% downside in the very near term).
And then you wait for human nature to revert to mean. Not complicated unless you figure human nature changed all of a
sudden. Then this strategy is doomed. But since human nature in investment hasn't changed one jot since we first crawled
out of the swamp it seems unlikely to change anytime soon. Your choice.
Has human nature changed? If yes, stay away from the Vix.
None of this means that the S and P HAS to decline from here, just that probability says that this index struggles over the Summer and usually falls in October or November and has a 50% chance of making an interim low in August over the last 6 years.
In the last 6 years the Vix made it's annual low in June once, in July 3 times, in August once and September once.
