A VIX Trade for Bearish Outlook

I have been singing a bearish tone for a while now and Jury is still out there if this is a bear market rally or a new bull market that was reincarnated on March 9th. I earlier mentioned about a “potential sell signal” and it seems like it is on the way of formation. Though it is not a good idea to anticipate, but if I do, then here is a trade idea I am looking for (you need to be a basic member of the site to view this trade, it is free till Dec’09, pls sign-up here). This trade is based on VIX as underlying.

VIX Sept Bull Debit

I am looking for a Bull Call Debit spread on VIX (can be constructed via Bull Put Credit spread as well). The plan is to buy a Sept 35 VIX call and sell Sept 40 VIX call for a current total debit of $0.90/spread. That’s probably the max I can lose on this spread. But if successful, and if market does see a crash and VIX (sept) rises to 40 or above, it will make $4.10 and that a nice 4.4 :1 risk/reward ratio. I, however, don’t plan to hold for that long. I shall be out as soon as it hits say 50-100% profit target between now and then.

Pls do your due diligence before investing as VIX options works quite differently from normal equity or index options. If you would like to read about VIX, pls click here.

Profitable Trading, OP

Disclaimer– As of this writing I own this spread but I may get out anytime.






One response to “A VIX Trade for Bearish Outlook”

  1. OptionPundit Avatar

    As of this writing on July 8, the trade is up +20%.

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