TheOptionPlayer.com sets up a VIX Short-Term Futures ETN (NYSE: VXX) May short-term (59-day) option strategy (Based on Tuesday’s closing quoted bid/ask prices). Login in with a Premium Subscription to view data/images
Why we recommend it:
The difference between funds paid out and received is a $1.35 per share debit maximum risk for this trade. The maximum profit is approximately $2.65 per share (approx. 190%) if the ETN moves higher prior to the option contract expiration date. See Guidelines page at www.theoptionplayer.com/ for explanation on how trade is set up.
• Last month’s historic surge in volatility indices may have ushered in an end to a protracted period of low volatility on Wall Street.
• Traders are wondering whether this week’s FOMC announcement and ongoing political drama in the White House is a perfect storm to ignite volatility again.
• Volatility Index, known by its ticker symbol VIX, is a popular measure of the stock market's expectation of volatility implied by S&P 500 Index options. Generally, volatility tends to move in the opposite direction compared to stock prices. Some investors buy the VIX as a technique to hedge against market crashes.
• The S&P 500 VIX Short Term Futures ETN (NYSE: VXX), tracks the S&P 500 VIX Short Term Futures Index.
• As evidenced in the VXX chart below, the volatility index is bouncing off a support level identified as the 200-day SMA.
• We are buying VXX call options as an inexpensive insurance policy in the event stock prices plunge again over the next few months.
• The published trade selected strike prices to minimize the amount of funds at risk.
52-Week High: $73.60
52-Week Low: $25.59