For example, in the next few days, the odds of a market crash are low so VIX futures are cheaper compared to futures six months out where the odds of a crash are greater. In early February that year, the VIX futures curve flipped from normal contango to heavy backwardation as you can see below.

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It achieves this by using a portfolio comprised of the two VIX futures contracts that are nearest to expiration. It uses leverage at 1. This means it is ill-suited to a long-term buy and hold strategy and is instead suited to very short-term bets on price volatility. Disclaimer: The information above is for educational purposes only and should not be treated as investment advice.

The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser. We will not share or sell your personal information. You can unsubscribe at any time. As Seen On. Like it? Share it!

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This is an event that actually tells you the price is starting to drop. Exit trades if you notice the overall trend in the market shifting against you. If you are short, a higher swing low or higher swing high indicates a potential trend shift. If you are long, a lower swing low or lower swing high indicates a potential trend shift.

Alternatively, set a target that is a multiple of risk. This two-times-risk multiple is adjustable based on volatility. In very strong trends, profits may even equal three or four times the amount at risk. If the volatility ETN isn't moving enough to easily produce gains, which are twice the amount that you risk, avoid trading until volatility increases.

Then, when the price breaks above the top of the consolidation, enter a long position. Place a stop-loss order just below the low of the pullback.

The VIX produces an educated guess about how much the index is likely to move over the next 30 days. Traders who want to profit from bets on volatility in the market might invest in the VXX. The VIX, or the volatility index, measures volatility in the stock market. When the VIX is high, it means that volatility is high.

High market volatility is usually accompanied by market fear. Exchange-traded funds ETFs have emerged as another instrument of choice for day trading.

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ETFs offer the diversification of a mutual fund, the high liquidity and real-time trading of a stock, and low transaction costs. An ETF trade typically takes two business days to settle trade date plus two business days.

However, a no trading approach or method works every time, which is why stop-loss orders are used to limit risk. Profits should be larger than losses. This way, even if only half the trades are winners profit target is reached , the strategy is still profitable. If you can't reasonably expect to make a profit at least two times your risk based on that day's volatility, then don't trade this strategy.

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Shorting UVXY and Turning a Profit is Really, Really Hard

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How To Day Trade: Trade Recap on UVXY - How To Short The Market

Key Takeaways Day trading volatility exchange-traded funds ETFs can be attractive at times, but there are other times when volatility ETFs should be left alone. An ETF is an exchange-traded fund, which holds underlying assets in that fund. An ETN is an exchange-traded note, which does not hold any assets and is structured as a debt security. Article Sources.