Although the average market return from 2010 to 2020 was 9.2%, the stock market is notorious for its extreme highs and extreme lows on a year-to-year basis.
But what if you could be the exception to the rule when it comes to investing? What if you could make money on the stock market no matter what?
You’d be crazy not to take that up, right?
As it turns out, investing with long volatility in mind can allow you to do exactly that. Keep reading to find out more.
What Is Long Volatility Investing?
In the context of the stock market, volatility refers to the movement of share prices or the market at large as it relates to a normal year. However, a share jumping up in price isn’t necessarily enough to make it a volatile stock.
The timeframes involved matter as well. And the bigger the jump or dip in price, the more volatile the share is said to be.
Long volatility investing is simply about using strategies to profit from upward spikes in volatility.
Here’s How You Can Start Profiting From Volatility
There are multiple ways that you can approach volatility. Here’s our list of long volatility trading strategies that you can use to boost your returns.
Method #1: Options
Whether you own the underlying share or not, you can cash in on a sudden increase in volatility by placing put and call options on the same asset. If the price goes up, you’ll be able to cash in on your call. And if the price drops, you can profit from your put.
This may be an active long volatility strategy, but the end result is still the same. Long volatility option strategies allow you to profit from price movements.
Method #2: Futures
These are contracts that require you to buy or sell assets at a predetermined price and date. This element of certainty is what makes futures a solid option for investors who want to benefit from volatility.
To be clear, this approach does have risks. If you’re buying a futures contract and you make the wrong choice, you could lose a lot of money.
But if you’re thinking very seriously about long volatility strategies, trading futures can make for an impressive hedge.
Method #3: Long Volatility ETFs
What if you’re an investor who doesn’t want to learn about puts and calls? What if your broker doesn’t give you access to futures? Are you just out of luck?
The good news is that a convenient way to cash in on increased volatility is to invest in a long volatility ETF. These shares will often track with futures while giving adding a long-term volatility option to your portfolio.
With so many investors taking advantage of AI in finance as well, it’s clear that there are serious profits to be had by going this route.
Should Long Volatility Trading Be on Your Investing Radar?
Finding a stock market strategy that’s able to keep your portfolio profitable no matter what is basically the Holy Grail of investing. Active long volatility strategies are a viable option for investors who want to benefit from volatility without having to risk too much to do it.
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