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Why 'Options Action' Traders See Opportunity For VIX Trade

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On CNBC's "Options Action," Mike Khouw spoke about a bullish options trade in VIX futures. He said the VIX and S&P 500 are "anti-correlated" as one goes down when the other goes up. So when you make a bullish bet on VIX, you are betting that the S&P 500 is going to fall.

On Thursday, he noticed a purchase of 200,000 contracts of the July 25/40 call spread in July futures. A trader paid around $2.07 for the trade, which represents an outlay of around $40 million. The trade breaks even at 27.07 and it can make a maximal profit of $12.93. Khouw said it is important to know that when there is a spike in VIX, the longer-dated futures do not move as much as spot VIX.

Carter Worth said that VIX gapped higher in March 2020 and it took a year for it to fill that gap. Worth expects to see a pop in the VIX.

Tony Zhang likes the trade and he sees it as a smart and low-cost way to hedge a large institutional portfolio.

 

 

 

 

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Posted-In: Carter Worth CNBC Mike Khouw Options ActionOptions Markets Media Trading Ideas

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