Trump Trade: Volatility

Just seven days ago I shared I was placing a bet that Trump or other market forces would bring back a measure of volatility to the market. The timing was pure luck, I could have never guessed just a few days later Trump would embark in a war of words with North Korea threatening a nuclear conflict. On Tuesday the market came off its all time intraday highs and began a significant trend downwards and my bet on volatility via TVIX began to pay off in a big way. Things started fast, on Tuesday TVIX was up approx 5%. Then the gains continued into Wednesday with an approx. 10% cumulative gain. Today TVIX just boarded a rocket ship and took off with a gain of over 18%!

Under normal circumstances one would expect a US president not to engage in such rhetoric and let diplomats take charge to cool the situation. We have Trump and Trump does what he does which is to continue to inflame. Today at approx. 2:50 PM EST he held a press conference were he double-downed on his threat to North Korea. Trump stated that “maybe it (his prior threat) wasn’t tough enough.” Predictably these comments shifted a down market downwards even further.

S&P 500 8-10-17 trump comments

I have to always be clear about this: I’m not wishing for a military conflict in order to make money! That said, Trump’s bellicosity is sinking the markets, spiking volatility and thus boosting TVIX into the upper stratosphere. Since Tuesday it has moved from $15.90/share to closing today at $22.25. Even in today’s aftermarket it continued to rise to close to $24/share.

Earlier today I double-down on my own bet and added significantly to my positions in TVIX. I have 10% of my 401k allotted to it and in my non-retirement investment account close to $4,000. I figure I’m already up significantly so why not swing for the fences? If the trade reverses the worst case scenario should be break even. Since this is a leveraged trade you have to figure things can reverse fairly quickly. However I’m up over 15% so far so I hope that gives me enough runway to get out in case the trade begins to sour.

It doesn’t look like Trump wants to bring the temperature down on the situation. The more he talks (and I hope that is all he does) the higher it appears TVIX might go. It also helped today that we got poor retail numbers, for example Macy’s share price dropped a whopping 10%. If I stay in this trade until September there is always the chance that Congress can bring chaos to the markets via a budget and/or debt ceiling standoff.

Tomorrow at 5:30 AM PST we have the Consumer Price Index (CPI) release. I suspect if we have some good CPI numbers it could be a catalyst for the dollar and the market to move upwards. Or maybe the CPI number will be lower than expected adding more fuel for the market to decline. There was a sea of red today across all sectors, usually days like this are balanced out the following day with some sort of gain in the market. I don’t know if that will happen, perhaps all the geopolitical shenanigans will overshadow any positive news or normal trends in the market.

Hopefully I can stay in this trade though, I want to swing for the fences and get a 50%, 60% or even greater return. I hope I have the luck, patience and wit to pull this one off.


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