When the US economy showed signs of vulnerability in October, James McDonald took special notice.

The CEO and chief investment officer of Hercules Investments saw the first indication of possible risk to markets when a key gauge of manufacturing activity shrank for two straight months.

At the time, the S&P 500 was in a bull market that was unprecedented in its duration and gains. Also, the Cboe Volatility Index, known as the VIX, was near historic lows, showing that investors expected the good times to persist.

But then came the coronavirus, which was so crippling to the global economy that investors could not shrug it off as they had the manufacturing slowdown, Hong Kong protests, and impeachment trial. Volatility blew up as investors realized that normal life was grinding to a halt across the globe.

McDonald was ready for this. He is among the investors who have cashed in the market's turmoil, thanks to strategies he adopted ahead of time to profit from this kind of volatility.

"In my 26 years, I've never had a trading strategy that has had as much consistency and safety," he told Business Insider.

Back in October, his firm, which manages $150 million in assets, engaged its High Sigma strategy purchasing out-of-the-money call options on the ProShares Ultra VIX Short-Term Futures ETF that profits from higher expected stock-market volatility.

The underlying ETF's price went from about $11 as the S&P 500 peaked on February 19 to above $126 on Wednesday a gain of more than 1,050%.

As a result, McDonald's options trades that bet on this price trajectory have paid off handsomely.

That strategy is over, McDonald said. He is now shifting to what he calls a Gamma Yield strategy that's designed to take advantage of excess volatility and fear in the market.

The strategy monetizes these emotions by selling Cboe-listed options on the cash indexes for the Nasdaq 100, the Russell 2000, and the S&P 500.

His rationale is that options earn part of their value from anticipated price changes in the underlying security. And so the more fear exists in markets, the better the strategy performs.

"As long as there's fear in the markets, these premiums are going to stay high," he said. He added, "I think we can run Gamma Yield all the way to the election."

A cursory look at the stock market's moves during the past couple of days demonstrates why these options have been so profitable. Quadruple-point moves on the Dow Jones Industrial Average have been commonplace since late February, for example. Consequently, these options have become more valuable to account for the wide range of possibilities that traders are pricing in for the future.

"We've done over 700 trades, and every single one of them has been profitable," McDonald said. "We have not had a single loser because of this environment and it makes no sense to do anything else at this point. We're focused on capturing the unique opportunity that we have."

He said the gains of each trade averaged out to 60% to 90%.

McDonald sees no reason to invest any other way for as long as the market is in free fall. He expects volatility to eventually normalize, just as it departed from its normal historical range. But buying index call options should remain profitable all the way through the election because smaller pockets of volatility are likely.

"If we can find a vaccine, that will be great," McDonald said. "But it's not going to erase the negative revenues and the negative industrial output probably for Q2."

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Coronavirus investing strategy: How to profit with stock index options - Business Insider Nordic