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Option Play on the VIX

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August 26, 2011 – Comments (0) | RELATED TICKERS: VXX

The VIX is currently trading at 39.76.  Volatilities have risen across the board ahead of both GDP numbers and Ben Bernanke's Jackson Hole speech due out tomorrow.  Right now we can see the VIX cash trading above the VIX futures or in backwardation.

Chart Analysis on the VIX.

For this play we will look to short the 65 VIX September Call for a .30 credit.  Trading the VIX for a credit allows us to take advantage of double decays which is something not seen in normal options.  With VIX in backwardation it will decay or sell off to meet the future price.  The September futures are VX U1-CF, in the above chart, or 34.75.  That means the market is pricing in a drop of 5 points (39.76 - 34.75 = 5.01) by expiration.  Then we also have the usual time decay involved with options which will not be discussed here.

So Why the 65s?

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