Investors can capitalize on the heightened volatility and increased trading activity through the broker-dealer-related exchange traded fund, and the recent sell-off has provided a cheap entry point into the space.
The iShares US Broker-Dealers ETF (NYSEArca: IAI), which tracks U.S. investment banks, discount brokerages and stock exchanges, has declined 3.3% over the past month. Year-to-date, IAI is up 0.7%. [Broker-Dealer ETF Enjoying Improved Trading Activity]
Brian Overby, Options Analyst at online broker TradeKing, argues that the more volatile market conditions will encourage traders to be more active, writes Michael Kahn for Barron’s. The heightened volatility helps provide wider discrepancies in the markets and greater potential for traders to profit off the swings.
“The fact that the CBOE Volatility Index (VIX) has remained above 14 for the past month will most likely result in more business for everyone in the industry, especially those relying on commission revenues,” Overby said in the article.
The VIX, or the so-called fear index, surged to 31.06 on Oct. 15. Currently, the volatility index is at 16.8 or hovering around its historical range. Back in July, the VIX was trading at a 7-year low of 10.8, reflecting a very complacent market.
Moreover, Kahn believes stocks that rely on revenue from trading show better “value” from a technical viewpoint after the October sell-off. For instance, Charles Schwab (NYSE: SCHW) experienced a panic fall and quick reversal. Additionally, TD Ameritrade (NYSE: AMTD) experienced a similar shift in sentiment.