Near-Term Vol Looks Fully Priced (VIX)
With the overall market selling off today, the CBOE Volatility Index (CBOE: VIX) is spiking sharply; currently it is higher by 15.20%, at 25.77. The measure of movement in the S&P 500 is now trading above its 18-day moving average and nearing its 50-day moving average.
The VIX futures are also moving higher today. Currently, the front month future is higher by $2.45, trading at $25.70. The September and October contracts are also finding bidders, currently higher by $1.75 and $1.45, trading at $29.30 and $30.75, respectively. Notice that the contango over the front end of the curve has flatted sharply between the spot and front month. This is often indicative of fully valued near-term volatility.
Recall that VIX traders have been telegraphing this pop in the VIX, fall in the S&P 500, for more than week with traders buying far upside calls on the VIX.
Traders should consider selling some near term upside on the VIX. Note that the August contract expires in four trading days. Selling the August $30 call for $0.60 will get you done; you can add to your premium by selling the August $22.50 put for $0.15 as well. Another options is to sell the VXX $21/25 strangle for $0.60 (note that this contract expires on Aug 21st, not Aug 18th).
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Tags: CBOE Volatility Index