Top 3 Ways to Trade Mid-Term Elections

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FILE PHOTO: A Wall Street sign outside the New York Stock Exchange

After a rough half of 2022, the second half may not be much better.

Inflation is out of control.  Oil and food prices show no signs of retreating.  There are fears of a recession.  And, at the moment, investors see little room for upside with concerns the Federal Reserve’s fight against inflation will damage risk appetite.

Consumer prices soared 9.1% in June, year over year – its fastest pace since 1981, and well above expectations for 8.8%.

According to CNBC, “Excluding volatile food and energy prices, so-called core CPI increased 5.9%, compared to the 5.7% estimate.  On a monthly basis, headline CPI rose 1.3% and core CPI was up 0.7%, compared to respective estimates of 1.1% and 0.5%.”

“Grocery prices have jumped 12.2% compared with a year ago, the steepest such climb since 1979. Rents have risen 5.8%, the most since 1986. New car prices have increased 11.4% from a year earlier. And average airline fares, one of the few items to post a price decline in June, are nevertheless up 34% from a year earlier,” added the Associated Press.

And we have mid-term elections coming up, and expect to see a spike in volatility.

In fact, in most midterm elections, volatility has spiked.

  • Ahead of the midterm elections in 2008, the VIX jumped from about 45 to 80
  • Ahead of the midterm elections in 2014, the VIX jumped from 12 to 40
  • Ahead of the midterm elections in 2016, the VIX jumped from 12 to 23
  • Ahead of the midterm elections in 2018, the VIX jumped from about 17.50 to 36
  • Ahead of the midterm elections in 2020, the VIX jumped from about 25 to 40

Now, with the 2022 midterm elections nearing, we believe the VIX could spike again.

Should that happen, investors can position themselves on the long-side of volatility with:

  • ProShares Ultra VIX Short-Term Futures ETF (UVXY) — The ETF was designed to match two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index.  When the VIX pops, the UVXY typically follows.
  • iPath S&P 500 VIX Short-Term Futures (VXX) — The VXX ETN provides exposure to the S&P 500 VIX Short-Term Futures Index.
  • ProShares VIX Short-Term Futures ETF (VIXY) — ProShares VIX Short-Term Futures ETF provides long exposure to the S&P 500 VIX Short-Term Futures Index, which measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration.