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
- 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