The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) -- If you happened to start 2011 by deciding to go to the Bahamas and sit out the market for 12 months, it wouldn't have been a bad idea at all.
As of Tuesday morning, the
S&P 500 Index
found itself sitting just about where it began the year.
Of course, you would have missed the wild, volatile ride that has been the hallmark of this year's equity market performance, particularly since July.
The last couple of weeks have been a microcosm of 2011, as last week's market action shot up in reaction to the latest round of good EU news, which, true to form, came on the tail-end of the prior week's most recent round of EU blues.
This time, the upward nudge came from the lips of the vice-president of the European Central Bank (ECB). He emphatically stated that it was "absurd" to even consider that the European Union would not survive as a monetary union, and, just in case anyone didn't see the folly of such thinking, he drove the point home by concluding that it was "unthinkable" to even consider that the euro wouldn't survive.
Apparently, Wall Street, always game to go along with a good pronouncement, was swayed by the VP's argument. Either that or the fact that investors like to believe in Santa Claus, or at least a rally established in his name.
In any event, the
Dow Jones Industrial Average
ended up gaining 3.6% on the week, putting it up 6% for the year. The
S&P 500 Index
had a similarly impressive week, up 3.7%, though, as mentioned, it barely was enough to push the benchmark index over the hump, landing at a mere 0.6% above the flat-line. Meanwhile, the tech-laden
Nasdaq Composite Index
, which added 2.5% as of last Friday, found itself the odd man out, still under water by 1.3%.
With all that has occurred over the course of the year, it is somewhat surprising that the final fate of the equity market still remains in doubt, and won't be decided until possibly the last trading day of 2011.
Adding to the mix of variables in the equation, the extremely low volume of trading that occurs this time of year lends itself to higher volatility than usual, even for this high volatility market.
Yet another factor that will help decide whether the major indexes end up in the red or black for the year is the holiday tradition of end-of-the-year "window dressing", when money managers attempt to dress up their portfolios, though putting lipstick on a pig, as has been frequently observed, still leaves one with a pig.
On the Options Front
If you are tired of partying for the holiday and care to consider a last trade before the end of the year, a pairing of volatility and precious metals might be of interest. Silver, which has mainly been staggering sideways since its mercurial rise and fall, seems to be finding a level of support of 27.50.
There are a number of factors that could return this metal to the radar of speculators in a big way, and, while there remains a degree of danger of additional downside, a look at the chart of SLV indicates that there is more upside to the trade.
For this trade, you could use the
Silver Trust ETF
, which is designed to track the spot price of silver bullion, and
S&P 500 VIX Short-Term Futures ETN
, which tracks the VIX volatility index.
This trade is long silver and long volatility. What this does is allows you to gain from an upward move in the precious metal, while hedging with a VIX derivative in order to cover yourself if the market turns down.
The trade is somewhat counter-intuitive as a pair trade, as you are going long both ETFs. However, generally speaking, when the market goes down, the VIX goes up, and vice versa.
The trade: SLV APRIL12 35 CALL (Debit of .65). VXX MARCH 12 50 CALL (Debit of 1.39). Ratio the trade 2x in favor of SLV. Happy hunting and make sure you hedge!
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.