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How can I day trade volatility in exchange-traded funds? 


Mary S

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Hi Mary,

Volatility in exchange-traded funds can be an excellent opportunity for you to make a profit. However, there are at times where day trading volatility can be of high risk. When an ETF is volatile, it tends to move reversely to essential stock indexes like the S&P 500.
There will be a time when the S&P 500 will increase; the amount of volatility ETFs will inturn fall. Contrarily when the value of S&P goes down, that of volatility ETFs will rise.
You can take advantage of the changes in volatility ETFs at points where the market moves in the opposite direction and when the vital indexes are sharply declining.
Just like there are volatility exchange-traded funds, you may also have subtle exchange-traded notes. You can apply day trading volatility in both of them provided that the one you choose to trade is highly liquid. To determine whether an exchange-traded fund or note is highly liquid, you check the number of shares you will sell each day.
One volatility exchange-traded fund you can trade is the inverse volatility ETFs. This ETF follows the direction of the essential stock indexes typically, and it is best if you are looking at day trading an ETF or ETN whose volume is high. However, the most liquid and primarily used ETN/ETF in volatility is the iPath S&P 500 VIX Short-Term Futures ETN (VXX).
When the value of the S&P 500 is low, that of VXX rises rapidly. On the other hand, when the S&P 500 is rising, VXX starts to fall; hence it will not be suitable for day trading. The best opportunities are when the S&P 500 is declining.
Volatile exchange-traded funds are most often on the top of the S&P 500. In such cases, you will know whether you want to buy or sell in this market. However, VXX is not always leading the S&P 500. The S&P 500 may be above it, which will also give you the knowhow of when you can trade VXX. The best intraday trading opportunity is when the S&P 500 drops significantly. At such a time, you can follow entry and will enable you to profit from volatility ETF/ ETN. 
The price swings in volatility ETF/ETN are usually higher than in the S&P 500; hence they are best for day trading. It would be best if you employed stop-loss orders to limit risks while trading in an ETF strategy.

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