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How to Play a Low VIX

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VIX Term Structure


The trade is one of either the short-term in term structure or long-term in the term structure. I will save the long-term for another time since those positions are not as retail friendly. The short-term is and can be played by the iPath S&P 500 VIX ST Futures ETN (VXX).

The Feb VIX future has $2.55 of premium in it to VIX cash. Considering that future will expire before the debt talks swing into action it is a little rich. Even if the VIX cash is fairly priced (which I think it is for right now, albeit a touch high) future premium will erode. That is a perfect VXX time spread using puts. If you think VIX cash will launch between now and Feb expiration this is not the trade for you.

Trades: Buy to open 3 VXX Jan/Feb 26 put spreads for $1.10, or better.

I am looking for about $0.40 on the time spread, and if things go well you can sell the VXX Feb Weeklys against the position and Jan expiration.

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At the time of publication, Mark Sebastian held positions in VIX.

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