Three of the Best Ways to Hedge for Volatility

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Volatility could easily rocket higher with a great deal of uncertainty.

“We expect volatility to increase over the next month driven by a seasonal pickup in investor uncertainty, continued virus uncertainty, and significant monetary and fiscal policy catalysts,” wrote John Marshall, head of derivatives research for Goldman Sachs, as quoted by CNBC.

In addition, the Federal Reserve meets next week, and is expected to give further clues as to when it may slow its $120 billion in  bond purchases. “Fed Chief Jerome Powell has said the so-called tapering could occur this year, but investors are waiting for more specifics. Some investors fear a decline in asset prices as the central bank begins to take away its easy policies,” added CNBC.

With volatility likely, one of the best ways to hedge is to take a long position on volatility, which we’ve highlighted a few times in the past.

ProShares Ultra VIX Short-Term Futures ETF (UVXY)

The ETF was designed to match two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index.

iPath S&P 500 VIX Short-Term Futures (VXX)

The VXX ETN provides exposure to the S&P 500 VIX Short-Term Futures Index.

ProShares VIX Short-Term Futures ETF (VIXY)

ProShares VIX Short-Term Futures ETF provides long exposure to the S&P 500 VIX Short-Term Futures Index, which measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration.

With fear returning to the markets yet again, it’s time to take new positions in each.