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We’ll start the book off with two chapters, with one that shows when fear is at its greatest and has
correctly predicted the short-term direction of liquid ETFs over 80% of the time since 2006. For the S&P 500 ETF (SPY), the strategy has correctly predicted its direction over 91% of the time since 1993.
We’ll then look at a strategy that takes advantage of greed; in this case it’s extreme greed in stocks where the stocks reach parabolic levels, often because of news and crazy rumors, and then they reverse (they CRASH) the majority of the time. From there we’ll go to my favorite topic: trading volatility via VXX. No market gets inside fear better than the volatility market, and we’ll walk through the history and, more importantly, the structure of VXX, where we’ll see why and how this product was built to go to zero.
We’ll also look at the five types of buyers in VXX, a group that has historically lost substantial money year after year since 2009. They range from well-meaning but uninformed investment advisors all the way to outright gamblers. With this knowledge, we will then learn two trategies to trade this structurally inefficient product, one that applies a very short- term time frame (on average approximately one week) to a longer-term trend-following strategy that climbs aboard being short VXX on average for three months while VXX trends lower. There are strong historical test results in these
two strategies and these edges have been in existence since VXX was created and brought to the market
in early 2009.
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