The VIX made me do it!

Option junkie? Well if you are, you certainly look at the VIX and see it residing at recent lows. But have you taken the time to pull the VIX options up on your trading application? The VIX prices its options off of forward futures rather than the current VIX level, which tells an interesting story. Take a look at deep in-the-money calls on the VIX for June and July. The VIX 10 calls for June are trading at approximately $9.70 and the July 10 calls are $11.40. The VIX is priced as if it where already trading in the 20 range. Obviously someone, somewhere believes volatility is going to increase and is pricing the VIX forward future to account for what is believed to be an increase in volatility. Does this mean selling is imminent? Not exactly. But we could reason that this is a decent time to look for short positions and possible long volatility exposure. I am not an advocate of trading the VIX product directly. Rather I tend to utilize multi-exchange listed index-based products such as the SPY, DIA, IWM and QQQQ. For a more advanced trader, an out-of-the-money multi-month index calendar spread could be ideal, as it exhibits both a short market bias and profits from an increase in volatility. The IWM June/August 71 put calendar spread is currently trading $1.50 and has two rolling opportunities. Just remember to keep theta positive (time decay) and keep the premium rolling in.

thinkorswim, Inc. and its registered employee, Don Kaufman, do not solicit or recommend any form of trading in the individual stocks (or their derivatives) mentioned above. Please do careful, independent research before investing any money as well as weigh the possible consequences on your particular financial situation before doing so. The risk of loss may be substantial.