Is the Sleeping Giant (volatility) Ready to Awaken?

Like a sleeping giant, stock market volatility can lie dormant, but it never goes away. This time around, the giant is showing hints of awakening and whether the beast completely tramples the city or not remains to be seen. Regardless, the foundation for a good old fashion trashin' has been laid.

Here's the latest news that has the caused the restless giant to edge high:

• The U.S. stock market (NYSEARCA:SCHB) just experienced its worst monthly performance since May 2012. The S&P 500 (SNP:^GSPC) declined over 3% in August and the Dow Industrials (^DJI) declined 4.5%.;• The U.S. military and allies are close to striking Syria, which could make an already unstable Middle East situation even worse;• U.S. consumer spending decelerated in July to just 0.01% while personal income growth had its weakest gain (0.01%) since April; • Mortgage applications for home purchases are down 14% since May and the housing market (NYSEARCA:XHB) - one of the key driving forces behind the recovery - is sputtering.

Meanwhile, the CBOE S&P 500 Volatility Index (^VIX) jumped 28.57% in August and is reminiscent of a spike just a few months ago.

From May 24 to June 20 the VIX surged just over 46%. And per our June 2013 ETF Profit Strategy Newsletter (published on May 23, 2013) we were able to precisely identify this high profit setup. We wrote:

"Our favorite way to trade the VIX is not with VIX exchange-traded products (ETPs), but rather using VIX call and put options. We like the flexibility of being able to customize our VIX trades with specific strike prices and specific time horizons. We now recommend rolling into the VIX JUL 13 calls (VIX130717C00013000) at $370 per contract."

We rode the 46% spike in the VIX and stock market volatility and per our June 24 alert we sold half our VIX JUL 13 call options position for an 84% gain at around $680 per contract. On July 3, we alerted readers to sell the remaining half of the VIX position at $450 contract.

While most stock market pundits continue to dismiss the significance of depressed volatility, we've alerted our readers of multiple VIX trading opportunities.

In our most current VIX alert to subscribers (see our September 2013 ETF Profit Strategy Newsletter (published on August 16, 2013) we wrote:

"Since the end of last year, the VIX has experienced a brief jump nearly every two months (Dec., Feb., Apr., and Jun.). And by that count, we're due for another jump. Right now, we recommend buying VIX call options (to see exact strike price and month, click here ) near $260 per contract. Our aim will be to sell them for a profit ahead of expiration."

The current VIX trade listed above (still an open position) is already +41% since our Aug.16 recommendation.

Remember: Stock market sentiment changes on the dime and market confidence can quickly wither. A depressed VIX can be interpreted as too much complacency or lack of fear in the market.

Thus far in 2013, the VIX has closed above 20 on only two days - June 20th (at 20.49) and June 24th (at 20.11).

Exchange-traded products (ETPs) that go long the VIX include the ProShares VIX Short-Term Futures ETF (NYSEARCA:VIXY) and the iPath S&P VIX ST Futures ETN (NYSEARCA:VXX).

The VelocityShares Daily Inverse VIX ST ETN (NYSEARCA:XIV), which aims for opposite daily performance of the VIX has lost almost 11% in value over the past month.

The VIX reached an all-time low of 9.31 on December 22, 1993.

The ETF Profit Strategy Newsletter uses a combination of market sentiment, fundamental/technical analysis, historical research, and common sense to be on the right side of the market. Since the beginning of the year, 78% of our time stamped ETF picks have turned a profit. (through 6/30/13)