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What Is Volatility? Here's How to Play it in 2019

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Let's start with this. 

Volatility is a measure of the magnitude of stock price variance. When stocks make a big move in one direction only -- either up or down -- that's merely a large move, not a volatile one. When stock prices move drastically up and then drastically down, or vice versa, that's volatility. Also, the reversal must be drastic; this is a measure of variance and magnitude. 

The undefined is Wall Street's 'fear index,' measuring the level of volatility. 

Some might think 2019 has been a volatile year for the U.S. stock market, but it hasn't. It's actually been a smooth ride upwards, with largely minimal downward movement. The VIX is down 41% year-to-date to a reading of 14.83, much lower than its three-year peak of 50, which it hit in early February of 2018. 

Between October 9 2018 and the middle of January 2019, there was a major correction in the U.S. stock market, reversing course from gains of roughly 10% in 2018 through October 8. Now the market is recovering, with the S&P 500 up more than 11% year-to-date.

But a top expert said the volatility seen between the end of 2018 and the beginning of 2019 is normal.

"After ten years of a bull run, and we have to normalize interest rates, it {the volatility} doesn't seem abnormally high," said Jim Carney, founder and CEO of Parplus Partners. The volatility "is what I'd expect." 

Related. Beware the Ides of March -- Maybe Shakespeare Was an Investor?

But here's the kicker:

"I expect a lot of chop {volatility} this year," he said. 

Related. How to Trade VIX Futures

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