HOW TO PLAY THE “FISCAL CLIFF”?

 

Two beneficiaries from "fiscal cliff" may be  ETFs and VXX.

-       ETFs are more tax efficient than mutual funds:  ETFs almost never distribute capital gains, and with anxiety about capital gains tax increases growing, that is a big plus.   traders are concerned about protecting the gains they have made this year and are trying to dodge headline risks associated with the fiscal cliff.  This is what’s happening to AAPL - Sell the winners!

-      VXX:  mkt went down since election, but VXX didn’t seem spiking.  Why?  2 reasons: 

 

#1:  the holidays are coming up.  There are more days off in the next month, and since the VIX calculates the odds of the markets moving when they are open, the VIX is rightly assuming less volatility.

#2:  VXX indicates only the options volatility.  traders are selling puts. They are selling volatility. A lot of money hedged, particularly when the S&P 500 index [.SPX  1349.98    -5.51  (-0.41%)   ] was above 1,400. Now, as the market has been dropping, they are unwinding those hedges. They are selling those puts they had bought because they are in the money.

So, what’s better hedge or protection of your portfolios in this environment?  None. 

You might trade SDS.  But you got to be very cautious and quick.