Lowest VIX since June 2007It's official, the VIX has fallen to the lowest level seen since before the financial melt-down! As a result, options on the ES (e-mini S&P) are at their lowest values in five years.Although we are typically advocates of short option strategies, this is not the time nor the place to be holding short option exposure in stock index futures; at least not on the put side of the market.There is an old saying that goes something like this, "Traders should buy puts (insurance) in equities when they can, not when they must". We don't know when and where this market will turn, but history suggests the party can't last forever...at least not without a correction.Traders might look to buy cheap bearish exposure using the September options. For instance, we like the 1360 puts for about 7.5 in premium ($375). In the not too distant past, a put 55 handles out-of-the-money such as this with a little over 30 days to expiration would have run nearly three times this amount. This creates a cheap and limited risk way to enter the short side of the e-mini S&P, but a trader could turn it into a free trade by selling a September 1450 call. This trade is free in regard to out of pocket expense, but does involve a margin requirement, and theoretically unlimited risk above the strike price. Good luck! |
Commodity Trading 101