Tag Archives: etfs

How to make money from market volatility

A friend recently wrote me about a strategy he heard for exploiting market volatility.  I get these questions sometimes because I’m in finance, and because I’m in finance let me be up front.  I’m not giving you financial advice here.  I’m not an advisor, I’m not competent, you should probably close this page now and burn your computer.  Past performance has no correllation with future performance, as everyone should have learned in, oh, 2008.

That said, let’s have a little fun with these ideas.  To paraphrase my pal’s email:

Apologies in advance for what I hope is a not-too-complicated financial question.  So you ever heard of something called volatility drag?  Something to do with how over time double- and triple-leveraged ETFs always lose money. I found an investment opportunity that uses this principle to make money.  The pitch I heard says that the strategy is sound and has data to back it up since the 90s.  I find it hard to believe that something that automatically mints you money (admittedly at a “watching paint dry” pace) exists, yet it seems so from what I can tell…

I hadn’t heard of volatility drag before but it was fun to learn about.  Under the fold:  Charts! Definitions! Sage Advice! Links to books!

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