thinkMoney - Spring 2016 31

June 2016


 Game on, Fed

• AS IF INVESTORS DON’T HAVE enough to deal with in 2016, what with a U.S. Presidential election looming, oil’s debilitating nervous breakdown, and now, rumblings of a potential European shakeup as Britain threatens an EU “Brexit.” And despite the newer worries, we are still asking, “What will the Fed do?” Perhaps the question traders should be asking is, “Why should we care?”

The point is, the rate-speculation game isn’t going away. And as they say, don’t fight the Fed. If you've been keeping your distance from interest rate trades, time to buck up and learn something about what you've been avoiding. Our cover story, “Popping the Cork with the Fed” on page 14 starts you from the beginning and what you can do about it.

Speculation on rates aside, there’s a new asset class in town that could comfortably sit right next to the traditional stock-bonds-cash portfolio—volatility. Volatility as an asset? Yup.

Consider this. In 2008 when all the other asset classes tanked at the same time—thereby blowing modern portfolio theory out of the water—volatility was one of the few things rising. And when markets recovered, volatility fell. The good news for traders and investors is that you can now invest in volatility through a multitude of “fear index” products that capitalize on these trends. For more, read “The Trader’s Cure for the Volatility Blues” on page 26 and decide for yourself.

We don’t have to tell you that the remainder of the year should prove to be difficult to predict. So choosing strategies carefully to accommodate many market conditions will go a long way to strengthening your skill set. Calendar spreads, in particular, are one such strategy. Not only can they be traded in neutral markets, but they can be bullish and bearish. They can be many things. So if you’re a veteran trader and still confused about them, see “Beyond the Basics: Calendar Spreads 3.0” on page 22.

As rates do whatever it is they’re going to do; as political candidates jockey for constituent love; and as oil, well, keeps being oily, keep your head cool. Learn some new tricks from this issue, and be ready for the one thing that’s as certain as death and taxes—volatility.

Happy Trading,
Kevin Lund