Whenever there's volatility in the market, I like to take advantage of it. As a trader, you need to be flexible and adaptable, using the tools that make sense for the particular circumstances you find yourself in. When we are experiencing volatility in the market, $UVXY is one of the my go-to vehicles.On Tuesday, the S&P had been down four days in a row and was resting on the 50 DMA. When the market pulls back aggressively, as it had, volatility rises. But stocks, and the market as a whole, can only go so far, so fast in either direction before there's a correction. The analogy I like to use is a rubber band - you can only pull it so far before it snaps back.��A quick look at the ETF $UVXY, which tracks market volatility, confirmed that it was over-extended, and due for a pullback. It had soared from $9.40 to $16 over just a few days!On 6/14, $UVXY�gapped up. When you see a gap up after a big run like this, it's easy to assume that's an extremely bullish sign. In reality, it's the exact opposite. These are called exhaustion gaps, and�they are usually the last gasp of an over-extended stock.
We shorted it at $16.15, with a stop at $16.40. Very quickly, it flushed down to support. We covered partial shares on the way down, closing the entirety of the position around $14.60. Overall, a great trade. But it's important to note that $UVXY is only worth trading when the market is volatile - the rest of the time, it doesn't move enough to provide worthwhile percentage gains.Here's a short video I put together to walk you through the trade! Any questions, email me at kunal@blog.blog.blog.bullsonwallstreet.com
