The Best 3 Ways to Invest in Trade War Volatility

Volatility Ahead Road Warning Sign , 3d render

On September 1, 2019, the U.S. will be “putting a small additional tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our country,” tweeted President Donald Trump.  “We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one,” he added.

China then retaliated, halting all imports of U.S. agricultural products.

“The leverage that China has is its large agricultural purchases,” Darin Friedrichs, a senior analyst at INTL FC Stone’s Asia commodities division, as quoted by Bloomberg.  “This does affect U.S. farmers and the rural U.S. voting base that’s normally in support of Donald Trump. If they hit back before the election, that’s the obvious way to retaliate.”

All of which sent the Dow down 1,000 points in a couple days.

Then, markets fell even more as global bond yields raised concerns. In fact, the 10-year Treasury yield had just fallen to its lowest level at 1.595% after starting August 2019 above 2%.  That move narrowed the yield curve, a widely watched recession indicator. “A sharp decline in yields as the 10-year note falls under 1.65%. This is raising the ‘Fear Factor’ over the impact of the trade war on the economy,” Peter Cardillo, chief market economist at Spartan Capital Securities told MarketWatch.

Those yields began to plummet following a bigger than expected rate cuts from central banks in New Zealand and India, and unexpected easing from Thailand, as well.  All underscore growing concerns about a sizable slowdown in global economic growth.

All of that happened in the span of a week.

Unfortunately, this may just be the beginning of the malaise, and wild volatility.  To hedge for further declines, here are three of my favorite VIX-based opportunities.

ProShares Ultra VIX Short-Term Futures ETF (UVXY)

As volatility ticks higher with the trade war, ETFs such as the UVXY could run even higher from a current low of $30 a share.  The ETF was designed to match two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index.

VelocityShares Daily 2x VIX Short-Term ETN (TVIX)

The TVIX is another great way to trade elevated volatility.  This ETF  tracks an index of futures contracts on the S&P 500 VIX Short-Term Futures Index. As volatility ticks higher, the TVIX ticks higher.

iPath S&P 500 VIX Short-Term Futures (VXX)

As volatility returns to the markets, one of the best ways to profit from volatility is with the VXX ETN, which provides exposure to the S&P 500 VIX Short-Term Futures Index Total Return.  In simple terms, as volatility shoots higher, so does the VXX.


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