Top Ways to Trade Contagion Fear in the Market

Panic has returned to the market – again.

Unfortunately, with the latest financial crisis, more downside is likely.

After Friday’s SVB Financial crisis, First Republic Bank shares were just halted after plunging 64%, or $52.41 a share.  PacWest Bancorp (PACW) is down 30%.  Western Alliance (WAL) is down 60% on the day. KeyCorp (KEY) is down 28%.  

All as the Fed’s new backstop fails to soothe investor fears of what’s next.

“Most banks are solvent under normal circumstances. The problem is, pretty much no bank can withstand a full bank run,” said Steve Sosnick, chief strategist at Interactive Brokers LLC, as quoted by Bloomberg. “The FDIC action removes the idea of a deposit bank run, but what we’re seeing is an investor bank run,” he added.

As a result, investors are panicked.  They’re selling everything.

So, how can we trade the current volatility out there?

We can trade ETFs and ETNs, which track the Volatility Index.

Pro Shares Ultra VIX Short-Term Futures ETF (UVXY)

As the VIX pops, so does the UVXY ETF.

The Volatility Index and the UVXY ETF could see higher highs. All thanks to uncertainty about what could possibly happen next. For those of you that are new to the UVXY, the ETF was designed to match two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index. As the VIX moves higher, 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.