The Long & Short Of Winning VIX

The Option Pit VIX Light Is Red, And Volatility Is Likely To Drop.

Hey Traders, 

As we head into expiration for VIX options and futures, I know many traders are worried about whether or not it is time to hedge.

And all these questions about the best practices for trading vol are a big part of the reason we’re hosting a live event tomorrow at 11:30 a.m. EST (click here to register) … we’re trying to make sure all of our Option Pit VIPs know how to take advantage of vol opportunities, instead of letting the VIX take advantage of you …

Because if done poorly, VIX options and futures will kill you, even if you are right.

If done properly, though, you can kill it …

By knowing how to kill it hedging … you can ALSO kill it being short …

Here is what I mean …

The VIX closed at 17.12, its highest level since last Thursday.

Yet if you bought VIX futures or options at the end of the day on Friday … you are probably sad …

Why?

Because you hedged wrong.

Here is the VIX curve on the close of Friday:

On Friday, the VIX closed at 16.18.

The VIX July future closed at 17.90.

If you thought “Hey, I am smart … the VIX is going to be a point higher by Tuesday, so I am going to buy a July VIX future!"

Well,  congrats … you were right, the VIX closed almost EXACTLY a dollar higher on Tuesday …

And here is the VIX curve:

Also congrats, your VIX futures trade lost 0.18!

The key to VIX trading is knowing when to short and when to go long …

You do not go long when you THINK the VIX might go up …

You go long when it actually STARTS to go up.

As long as VIX futures are in a contango (futures trading progressively higher than spot), you do not want to be long unless the VIX is already going up …

However, if VIX is not going up, you can take the other side of the above trader from Friday, and clean up.

You sell when VIX is low and futures are trading at a steep premium …

You cover when VIX goes up …

You print money!

We focus on these kinds of smart trades a lot in our Trading Legion program … because if you know how to spot vol opportunities, and manage your vol risk, you can really make some mouth-watering vol trades. It’s even possible to get your trades to pay for themselves, if you do it right!

Free trading! Does it get any better?

Tomorrow, Thursday, July 15, at 11:30 a.m. EST, I’m going live with two of Option Pit’s heavy-hitters in a “trio” event of the summer … we’ll give you the scoop on the smart ways to trade volatility, and we’ll even dish out a hot volatility trade ONLY to attendees.

There’s no cost to attend, but spots are limited, so register here.

Your Only Option

Mark Sebastian


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