Volatility Index - VIX - cls: 69.25 chg: +14.12 stop: n/a
There is no doubt about - these have to be the most volatile markets ever. The Friday-Monday move in the VIX looked like a typical blow-off top sort of pattern. Today's massive sell-off in equities pushed the VIX to a 25% gain and back near its highs. If you're nimble enough traders could open new put positions on a move into the 75-80 range but the worst part of that plan is the obscene prices on the VIX options, which are soaring due to the extreme volatility in the market. Even if the VIX collapses it will have a negative impact on option premiums. Selling volatility seems like the best bet - see our spread play in the strangle section.
Note: The VIX options, which are European style options, have a unique expiration date. October VIX options expire on October 22nd, 2008. November VIX options expire on November 19th, 2008. The last day of trading for these options is the Tuesday before expiration. For more information check this link.
Our September 16th put position (suggested entry at 30.30) has a 25.50 target. In all honesty this position may be dead. We still have plenty of time with these next two. The September 29th position (suggested entry at 46.72) has two targets at 36.00 and 31.00. Our October 8th position (entry 57.53) has two targets at 40.00 and 35.00.
Picked on September 16 at = 30.30 first position
(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.)
CBOE Volatility Index - VIX - cls: 69.25 chg: +14.12 stop: n/a
If you missed your chance to sell some options on the VIX Monday morning we're getting a second chance today. The VIX has rocketed back to its highs near 70. There is a good chance the market will continue lower on Thursday morning, which should push the VIX toward its intraday highs. If you're considering new positions think about waiting for the VIX to near or pass its highs from last week.
Please see the CBOE website or our Sunday play description for details on margin requires for selling VIX options.
Note: VIX options are European style options that settle for cash at expiration. Furthermore VIX options have unique expiration dates. October options expire on Wednesday, October 22, 2008 and will stop trading on Tuesday, Oct. 21. November options expire on Wednesday, November 19, 2008 and will stop trading on Tuesday, November 18th.
We have listed two different plays. The strategy was to sell an deep in-the-money call to collect the premium while buying a much higher call as a partial hedge should the VIX remain extremely elevated.
VIX spread #1 with October options:
We wanted to SELL the October 40 calls (the opening price Monday morning was $13.00) and BUY the October 60 (open was $2.90) as a hedge against the VIX remaining elevated.
Here is the strategy in another format:
We wanted to SELL the November 30 calls (opening price was $ 8.60) and BUY the November 50 (opening price was $1.61) as a hedge against the VIX remaining elevated.
In a different format the play is:
SELL CALL NOV 30.00 VIX-KF.
Picked on October 12 at $ 69.95