Welcome to Extreme Investor Network, where we dive deep into the world of investing to bring you unique insights and strategies to help you navigate the markets. Today, we’re going to talk about the VIX and how it can be your friend, not your foe, in volatile times.
The recent resurgence in market volatility, as measured by the Cboe Volatility Index (VIX), has shaken investor confidence and revealed significant uncertainty. But with volatility comes opportunity, and elevated options premiums can offer higher risk/reward scenarios for savvy investors.
The VIX recently hit a multi-year high of 65, signaling heightened market fear and uncertainty. However, we see this as a chance to establish a bullish view on the S & P 500 ETF (SPY) that allows investors to weather additional volatility while positioning for potential market upside.
At Extreme Investor Network, we believe that technical analysis can help investors navigate volatile markets and make informed decisions. One strategy to consider is a risk reversal, which involves selling a put option while simultaneously buying a call option on the same underlying asset.
Here’s an example trade to illustrate this strategy:
– Sold the SPY $500 10/18/2024 put for $8.00
– Bought the SPY $550 10/18/2024 call for $8.25
This risk reversal trade was established when the SPY was trading around $530, with a total cost of $0.25 per one lot. Investors should be comfortable owning the S & P 500 around $5,000 and have the cash set aside as this trade involves selling a cash-covered put.
If you have a different view on the market, you can always take the other side of this trade. Remember, every buyer needs a seller in the options market.
DISCLOSURES: (Long this spread, long the SPY, short SPY $520, $525 puts)
At Extreme Investor Network, we provide information and insights for informational purposes only and do not offer financial, investment, tax, or legal advice. Before making any financial decisions, we recommend seeking advice from your own financial or investment advisor.
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