This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Firing Line: Bullish Options Trade on Volatility

NEW YORK (Top Gun Options) --

Strategic Mindset: In the Top Gun Options Advanced Model Portfolio, we are market-neutral but see possible surges in volatility.

Target: iPath ETN S&P 500 VIX (VXX) trading at $16.49.

Commit Criteria: The VXX, an exchange-traded note that tracks the VIX volatility index, is very unlikely to drop to less than $14, especially given current chaotic market conditions. VXX implied volatility is overpriced relative to its forecast volatility of 19.03% over the trade period. We are looking for possible price movement but for it to stay at more than $14.00 until the exit of this trade.

Tactic: Opening 50 VXX July 2012 bull put spreads (strikes [13/14]) for a 23-cent credit.

Tactical employment of bull put spread:

  • Selling to Open 50 VXX Jul 2012 $14.00 Puts
  • Buying to Open 50 VXX Jul 2012 $13.00 Puts
  • Net Credit: $23.00 per bull put spread for a total of $1,150.00
  • Max Gain: $1,150.00
  • Max Risk: -$77.00 per bull put spread for a total risk of -$3,850.00

Mid-Course Guidance: We will be watching for a price movement near the short 14 strike. As the short strike is threatened we will adjust the bull put spread as necessary.

Profitability Target: We will wait for this bull put spread to expire worthless and take the $1,150.00 credit as profit. If the VXX surges in the near term, we may choose to close this trade early in the Advanced Model Portfolio, taking a smaller, but faster, profit.

Exit Tactic: We will wait for this bull put spread to expire worthless, adjusting as necessary.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Matthew "Whiz" Buckley is the Founder and CEO of Top Gun Options, an exclusive provider of options training and practical trading applications for options traders of all skill levels. He is also the founder of Strike Fighter Financial LLC, a business-consulting firm specializing in leadership development, risk management and strategic planning for Fortune 500 companies and related organizations. He�s also a Managing Partner and Chief Financial Strategist at Wealth Creation Investing. Buckley flew the F/A-18 Hornet for the U.S. Navy. He's a graduate of TOPGUN, has close to 400 carrier landings and flew 44 combat sorties over southern Iraq. After leaving active duty, he served as a Managing Director at a Wall Street volatility arbitrage options firm and was a founder and the CEO of a financial media company. He is an internationally recognized speaker and combined his experiences in the military and corporate America in his first book "From Sea Level to C Level."

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,098.45 +18.88 0.11%
S&P 500 2,003.37 +6.63 0.33%
NASDAQ 4,580.2710 +22.5760 0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters