Volatile Compounds – VIX Trade Update

by CC November 3, 2016 12:53 pm • Trade Updates

The other day I updated with some thoughts on our VIX trade and what polls to watch for further spikes in volatility into the election. Today I want to update that trade to take off the risk while still being there for any spike in the VIX in the next week. First let’s recap the trade from Sept 8th:

*VIX ($12.25) Sell the Nov 15 put to buy the Nov 20/29 call spread for even money
  • Sell 1 Nov 15 put at 1.00
  • Buy 1 Nov 20 call for 1.70
  • Sell 1 Nov 29 call at .70

The risk on this trade is the short 15 put and the reward is if the VIX spikes above 20 (with a max gain at 29). Let’s dive into that risk a little bit. Right now the Nov VIX futures are above 18 on this spike in volatility over the past week (the spot VIX is now above 20). But if the market were to stabilize and some of this election uncertainty were to clear, the VIX could very well compress back towards that 15 level before it expires. But with the VIX futures 3+ dollars above that short 15 put, we have the ability to take off that risk by covering the short put, and we can do it with no expenditure if we roll down the 29 short call strike. So that’s what we’re going to do here with Spot VIX at $20.75:


  • Bought to close the VIX Nov 15 put for .50
  • Bought to close the VIX Nov 29 call for .55
  • Sold to open the VIX Nov 25 call at 1.05
New Position – Long the VIX (20.75) Nov 20/25 call spread for even money (currently worth 1.15)

Rationale – this trade now has no risk, it’s impossible to lose money. What it doesn’t do is lock in any of the gains so far (which you could do for about $1.15 profit right now). But our intention was to be there for a large spike in volatility, not just for the VIX to get near 20. So we’re going to keep the trade going and look for any move up to 25 or above in the VIX where the potential profit is up to $5, while risking only profits so far.