Is The VIX Ready to Go?
CBOE Volatility Index (VIX) August expiration calls
The Volatility Index (VIX) is setup for a short-term (27-day) bullish option play - traders could:
Buy VIX August 21st expiration 14 strike calls for approx $1.30 (yesterday's closing price)
Our target price is 18
We suggest a .25 trailing stop-loss
Why we recommend it:
The CBOE Volatility Index (VIX) sank to its three-month low this week to 12.29. This is also the eighth-lowest close for the VIX over the past five years. But with most of the major equity indexes continuing to make all-time highs it is easy to make a case the market is due for a breather. According to Gary Thayer, chief macro strategist at Wells Fargo "Investors should probably expect some near-term volatility, especially since the next few months are sometime the most volatile months of the year"
As highlighted in the chart below, technically the VIX should turn higher after bouncing off the support line as an upward move appears to have already begun. Also note how the Relative Strength Indicator (RSI) was at a grossly oversold level and is turning up. The momentum indicator (MACD) signals bearish pressure is waning and converting to a bullish direction. There should be minimal downside risk for this trade as the highlighted support line has held firm with the 52-week low below that level. At this point we are betting that buying VIX calls is a low-risk high-reward opportunity with a high probability of success within the next month.
52-Week High: 22.72
52-Week Low: 11.05
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