Just like Paul Revere warned Americans of danger back in 1775, three indicators are currently shouting, “Volatility is coming, volatility is coming!”
First, the Volatility Index ($VIX) has been stubbornly trading in the 16-18 range.
If it blows past the 18 level, it’s a very sure sign that a sudden volatility storm could happen at any moment.
Failing to prepare for the worst will leave your portfolio vulnerable to be wiped out if stocks start bleeding red.
The other two indicators that are telling us volatile downside is nearing are the iShares Russell 2000 ETF (NYSE: IWM) and the iShares Micro-Cap ETF (NYSE: IWC).
Both of these indices rolled over as soon as the market opened back up from the long Independence day weekend.
Although this does not mean that all the bullish opportunities are gone, it does show that there is an increased need for us to hedge our portfolios.
Fortunately, today’s market hedge will give you profits while protecting your wealth at the same time.
We’re going to “play the IWM” in two different ways to position ourselves for big gains.
Here’s how to make money from this volatility…
CJ’s Hedge Play #1
Buy ProShares UltraPro Short Russell2000 (NYSE: SRTY)
This is a hedge anybody can add to their portfolio right now.
We’re going to buy shares of the SRTY.
This exchange-traded note (ETN) is two times short of the IWM.
This means that whenever the IWM goes down 1%, the SRTY goes up 2%.
Which makes it an indirect way to play the IWM for predictable profits.
It only makes sense that we add SRTY to our portfolio since the IWM has been hit so hard by the recent volatility.
The IWM is showing the most risk right now out of all the other indices, and we’re going to set ourselves to profit if it starts dropping further.
CJ’s Hedge Play #2
Buy Puts on the iShares Russell 2000 ETF (NYSE: IWM)
Our second hedge play is a put option on the IWM.
Like I mentioned earlier, it’s showing the most risk right now so we’re going to play it’s downside potential for big profits.
Historically, the market is volatile and slows down the deeper we go into summer.
So, we’re going to leverage these historical patterns to make a put trade on the IWM.
We’ll be setting a longer-dated expiration to give us plenty of time and flexibility to play this position.
I recommend a direct play on the IWM by buying the October 15, 2021 $220 Puts for $8.90.
Hold onto this option until you can sell it for at least a 50% profit.
Until next time,
— Chris Johnson
Source: Straight Up Profits