Strategic Mindset:

Bullish on volatility.


VXX Trading at $22.97

Commit Criteria:

With VXX trading at all-time lows and volatility across the board being historically low, we at

Top Gun Options

feel VXX has a run coming. There are many economic/geo-political factors to put fear in the market at the current time or the immediate future, and VXX is a good vehicle for us to capitalize on this belief. The debt ceiling debate, Middle East tensions, three wars, the end (?) of QE2 and the market having to fend for itself don't transmit an air of calm.


Buying to open 10 VXX July 20 Calls at $3.65

Tactical Employment:

  • Buying to open 10 July 20 VXX Calls @3.65 ($365 per contract)
  • As a net debit
  • Maximum Risk: ($365 per contract)
  • Maximum Gain: Unlimited (we wish...)
  • Breakeven Point: VXX @ $23.65 prior to 7/16/11

TheStreet Recommends

Mid-Course guidance:

We will be monitoring all major economic and political events that could have any effect on VXX such as the fate of QE2 on 6/30/11. If QE2 does not come to an end, we would adjust our eject criteria below.

Profitability Goal:

We would look to sell these calls @ $5.65 (55% return)

Stop Loss:

We would eject from this trade if these calls fall to $1.85 (48% loss)

Exit Tactic:

Sell to close 10 VXX July 20 Calls @ $5.65

Firing line:

Usually "sell in May and go away" means just that. The stampede to the Hamptons and the junior folks on the desks. But there are many things lurking in the air that we believe could ignite and cause a spike in volatility. Buying some cheap calls on volatility will help us focus on our volleyball games. If you'd like to learn more about Top Gun Options,

click here

to register for a webinar tomorrow at noon or 9 PM eastern. Happy hunting and make sure you hedge!