How to profit amid low volatility

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Can one still make money in the low volatility financial markets? This question can be answered with mixed reactions since traders have either lost or gained during such times.

What is Volatility

Volatility being the rate at which a financial instrument moves, has both volume and price components. A highly volatile security fluctuates more than a low volatile security. Volatility is more often than note used as a measure of risk. Volatility can be aptly observed by taking a closer look at a stock’s price history.

As one of the tools used in low volatility trading, volatility index has gained popularity as it shows clearly the element of risk associated with a given stock. This is important both for amateurs and experienced traders if they are to profit from a low volatile market. Despite the fact that this index does not give a definite signal of bearish or bullish market, its interpretation shows that market fluctuation is at its highest during uncertain times.

Strategies and Tools to Use in Low Volatility Markets

Making money in low volatility markets entails employment of strategies and analytical tools. Low volatility has historically been less exciting to traders but with these latest strategies you can comfortably close your trades without much struggle and anxiety. These strategies however are not popular as such because for most of them the traders trading objective is shifted from the present and quick returns to a long term projection.

Volatility Index Defined

Volatility index also referred to as fear index is a statistical measure of the expectations in volatility and price fluctuations of the standard and poor index. When this index shows higher values, it is an indication that the Standard and Poor 500 index is poised to fluctuate.

The rising markets have been met by flat volatility and this has served as a turn off for most security traders. As the mantra goes ‘even cloud has a silver lining’ this typically means that even in the lowest of the levels of volatility one can still make money.

Calendar Spread

One such strategy is the calendar spread. This is a multi-month trading strategy which in essence makes the trader net-long volatility. Though not familiar with most security traders, this strategy is volatile-sensitive and hence with a rise in volatility, the calendar spread also appreciates in values leading to another round of increase in volatility levels.

Market volatility is occasioned primarily by market news. When significant information hits the market, market traders react in a variety of ways in response to such information. This is leads to a huge spike in volatility. Most market traders are sensitive to a price changing market information and as such are keen to monitor any bit of information entering the market.

Low volatility makes intraday moves to be less significant and this impact on most traders. Recently, most traders have been migrating from the low volatility climate to an environment where they get the opportunity to invest in major index products.

 

It is therefore possible to profit a mid low volatility by adopting the necessary trading strategies and tools. Making use of the volatility index and calendar spread has seen people making fortunes even in low volatile times.