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With the 2020 presidential election nearing, investors want to know how to trade it.
Oftentimes, the best way to trade it, is by trading volatility itself. This election year, combined with Coronavirus fears, has volatility off the charts.
In fact, we can use the Ultra VIX Short-Term Futures ETF (UVXY), the Velocity Shares Daily 2x VIX Short-Term ETN (TVIX), and the iPath S&P 500 VIX Short-Term Futures (VXX) to trade expected moves in the Volatility Index (VIX).
After all, if there’s a history of wild volatility ahead of elections, why not take advantage of it?
1992 Election Year: Bush v. Clinton
For example, right before the 1992 election, the VIX exploded from a low of 12.47 to 20.51. At the same time, the Dow Jones slipped from a high of nearly 3,400 to less than 3,100, handing investors the opportunity to trade uncertainty ahead of elections.
1996 Election Year: Clinton v. Dole
In 1996, volatility popped and dropped ahead of the election a few times. In August 1996 for example, the VIX ran from 13.70 to a high of 20.51 again. On uncertainty, the Dow would slip slightly from a high of 5,762 to a low of 5,550 only to recover shortly after. Again, uncertainty gave way to a short-side opportunity.
2000 Election Year: Bush v. Gore
Ahead of this election, the VIX exploded from a low of 16.54 to a high of 31.74. At the same time, the Dow slipped from a high of 11,400 to a low of 9,651. Again, investors were offered an opportunity to make money from uncertainty on the short-side of the market, and on the long side of volatility.
For years 2004-2016, click here.
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