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With the market at all time Highs, wise traders are becoming concerned with developing a plan for the inevitable pull back. While there is no perfect hedge or free hedge without risk ,I do think there are some opportunities with VIX calls that are worth considering.

With the VIX trading near all-time lows and the fact that the VIX is a “fear” based product,  it is reasonable to risk buying it to hedge against what many are predicting to be a violent volatility spike. These calls of course can also be bought as a purely speculative trade. The reason that I like to buy out right calls instead of verticals is because of the relatively inexpensive price at which they are trading . While you should not trade any product you do not understand, and of course you have to adapt it to whatever is appropriate for your portfolio and risk tolerance, I like buying the calls 40 to 60 days to expiration for slower time decay. The strike you choose is up to you considering cost and perhaps your opinion on where and when the VIX is headed. I like the 12 calls for SEP 20th expiration myself. If you choose to, you can buy whatever quantity  seems appropriate .  You can sell half of them on a quick spike in volatility to maybe around the 12 the 14 level and maybe save some for later for an even larger move or however you want to capitalize on them. With the VIX trading just under 10 the September 12 calls currently have an ask of $1.65. Take a look and see if this is right for your outlook and portfolio.

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Mark Fenton

mark@sheridanmentoring.com

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