This week has certainly been one for the books. Massive swings in stocks, coupled with the largest spike in volatility ever recorded have likely put more than a few investors out of business over the last several sessions.
It may get worse. The fear of inflation and rising bond yields have definitely weighed on stocks. There are other forces at work as well, however, that may be adding fuel to the fire. It’s no secret that some investors may have been making money off of short volatility bets over the last year, or even several years. These short-volatility traders and investors could gain exposure to volatility through numerous instruments, including equity options, equity index options, exchange-traded notes and other products. .
The XIV, for example, has been garnering a lot of headlines this week. The VelocityShares Daily Inverse ETN provided a way for traders and investors to make leveraged bets against rising volatility. The XIV ETN lost more than 80% of its value earlier this week, triggering a technical liquidation in the process.
In simpler terms, the ETN suffered catastrophic losses Monday after Wall Street saw the biggest decline in six years. The price of XIV tumbled from $99 to just $4.22 once the dust settled. The big drop was a result of a large spike in the CBOE’s VIX index, which surged from around 18 to 37.3, the highest reading in years. The drop in value was so bad that Credit Suisse announced a halt to its inverse VIX ETN prior to trading on Tuesday. Other, similar products are also being shuttered following the sharp surge in volatility this week.
To make a long story short, many traders and investors were destroyed betting against a rise in market volatility. Now many of them, including hedge funds and other institutional players, are desperate to raise cash to cover those losses. Where is the biggest place they make look to find cash? The stock market.
That’s right; a significant factor in recent stock market turmoil may be due to a lot of people betting the wrong way on an index, and being forced to sell stocks to raise capital.
This is another powerful reason that diversity away from stocks is not optional-it is a must!
Fortunately, there are a number of alternative asset classes that can provide significant upside potential, while also potentially providing a meaningful hedge against numerous economic and geopolitical issues such as inflation, deflation and declining currency values.
Physical gold should be at the top of your list.
Gold has been considered a reliable store of wealth and value for centuries, and unlike stocks, ETNs and other paper investment products, it carries zero counterparty risk. Gold has little to no correlation to many other asset classes such as stocks and bonds, and can potentially smooth out portfolio volatility while also possibly adding to overall performance.
You have now seen just how fragile the stock market can be, and how years of wealth accumulation can be wiped out in a matter of days. With additional stock market volatility and downside likely on the horizon, now may be the ideal time to make a significant allocation in this key asset class. Doing so has never been easier.
Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our account specialists are here to answer any questions you may have, and can even show you how simple it is to diversify your portfolio with gold using your IRA account.
Don’t wait for the next major wave of stock selling or for inflation to accelerate before exploring other options. Learn more about the potential benefits of physical gold today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: advantage gold, etn, gold, stock market, trading, vix, volatility