How to Utilize the $VIX as a Hedge
While the $VIX is a volatile index by itself, containing derivatives that can be fun to trade individually; it can also be used as a valuable hedge against a range of portfolios. While I had a tech heavy portfolio the last month and a half, I took tremendous short term gains anywhere between 10 and 15%. While holding the $VXX ETF to mimic movements of the $VIX, I used this derivative to hedge against sharp downfalls in this NASDAQ.
Over the course of tech making a quick run, the ETF I held took losses of around 20%. This is why it is vital to take a holding relative to other positions - I usually do 1/3 position compared to fulls in my portfolio. This way the losses only really amounted to ~6.5% compared to a full position. Today on 6/19, a couple days after I liquidated all my tech positions (still holding $NVDA), the NASDAQ took a hit and the $VXX ETF is up 8.2% currently. This spike has erased losses to -10% for the position alone (~-3% to a full position) and has actually made me net green for the day even after suffering losses of 2.5% on $NVDA.
Even though the $VIX is extremely risky by itself, I do think it contains great value as a hedge if utilized correctly.
Over the course of tech making a quick run, the ETF I held took losses of around 20%. This is why it is vital to take a holding relative to other positions - I usually do 1/3 position compared to fulls in my portfolio. This way the losses only really amounted to ~6.5% compared to a full position. Today on 6/19, a couple days after I liquidated all my tech positions (still holding $NVDA), the NASDAQ took a hit and the $VXX ETF is up 8.2% currently. This spike has erased losses to -10% for the position alone (~-3% to a full position) and has actually made me net green for the day even after suffering losses of 2.5% on $NVDA.
Even though the $VIX is extremely risky by itself, I do think it contains great value as a hedge if utilized correctly.