How to Turn Chaos Into Cash With Volatility Trading

On this week's Stansberry Investor Hour, Dan and Corey are joined by Jim Carroll. Jim runs the Vixology Substack, where he analyzes stock market volatility. He also serves as senior wealth adviser and portfolio manager for investment adviser Ballast Rock Private Wealth.

Jim kicks off the show by describing how he got his start in finance and how he found his way to volatility trading with CBOE Volatility Index ("VIX") futures. He breaks down what caused "Volmageddon" in February 2018, what he learned from the experience, and which specific factors drive the VIX. As Jim explains, many investors don't realize that the VIX can soar higher when everyone is piling into buying call options. (0:46)

Next, Jim talks about his "VIX Mix" composite of 17 different indicators that he uses as a warning signal for what's about to happen in the markets. This applies to both the downside and the upside, with the VIX Mix predicting crashes and rebounds alike. Though primarily for trading, Jim explains that long-term investors can use this tool to their advantage too, since they can prepare for bottoms and buy more stock when those drawdowns hit. He then warns listeners of several things they should keep in mind about volatility data, including small sample sizes, the fact that volatility clusters, and the outsized influence of institutional investors. (18:41)

Finally, Jim gives his opinions on VIX futures products, such as the popular Simplify Volatility Premium Fund (SVOL). He reminds listeners to beware of embedded leverage and to size their positions carefully – especially because the stock market has become like a giant casino. Jim also analyzes why the VIX is tilted more toward the bearish side, how "market makers" profit from investor fear, and how to more accurately gauge underlying sentiment. (40:15)