Hi everybody. JD here with your Rational Trader market analysis.
In today’s video: arbitrage opportunities can dissipate quickly.
The Inefficient Market Rears Its Head
As a Rational Trader, I firmly believe markets are inefficient — which simply means prices don’t always reflect all known information.
In the short term, markets are driven by emotion, headlines, and mechanical trading. That gives us opportunities.
Depending on your timeframe, these inefficiencies can last a very long time — or just a few minutes. Most of the time, the market does self-correct.
So when you spot a real arbitrage opportunity, you need to act — and then exit once it’s resolved. (For the record: Arbitrage is just a fancy term for spotting price mismatches — when two things should move together, but don’t — and taking advantage of that mismatch.)
That’s what I did today.
A Lightning-Fast SVXY Play
Today, I faded volatility using SVXY — in other words, I bet that volatility would keep falling.
The VIX was dropping — down below 18, with another 2.5% decline today after a big move lower yesterday.
But at the same time, SVXY — an ETF that rises when volatility falls — was only up fractionally. That divergence caught my attention.
Even though Dow futures were down thanks to United Healthcare’s (UNH) earnings disaster, the Nasdaq was climbing.
And Bitcoin — the ultimate risk-on indicator — was rising too. Plus we just had a paradigm shift on Monday, with U.S.–China trade talks took a strong step forward.
Put all that together, and it told me volatility had more room to fall — meaning SVXY had room to rise.
So I bought SVXY around $41.65, setting a price target of $41.90.
In under 30 minutes, I got out at $41.96 — a gain of roughly 62 basis points, or about 0.6%.
Narrative Whiplash Strikes Again
Shortly after that, Trump started speaking in Saudi Arabia, and the market got jittery again.
That kind of sentiment whiplash is exactly why I trade this way: I got in, captured the edge, and got out before the narrative turned.
This sets the stage for tomorrow.
If I see futures pointing lower again, and the VIX holding around 18, I’ll be looking for another opportunity to fade volatility.
In fact, I wouldn’t be surprised to see the VIX drop back toward 15 or even lower between now and Memorial Day.
Bottom line: arbitrage opportunities are out there… but they don’t last long. Stay sharp, and I’ll see you tomorrow.
Talk soon,
JD
The Rational Trader
P.S. Thankfully, not all great opportunities move this lightning fast. In fact, my 2ST strategy has been catching moves before Wall Street pounces on these stocks.
