Medium term
Trade view / 12 July 2016 at 9:24 GMT

Volatility to tick up again?

Trader /
United States

As a result of the most recent rally in the S&P 500, implied volatility of options on the S&P 500 as represented by the CBOE Volatility Index (VIX.I)  have tumbled below the 14 mark again. 

Historically speaking and through a multi-week/month lens, that represents a good spot to buy some Vix call options through a multi-week/month lens.

While trading the S&P 500 has arguably one of the more difficult trades over the past 18 months, buying implied volatility in oversold conditions and selling or shorting it in overbought conditions was one of the easier ones. In that vein I see a new trade setting up in the Vix options.

On the longer-term chart we see that this instrument is mean-reverting but tends to see periods of outlier spikes. I have no doubt that a next spike is not too far away, but instead of  making a bet on a big move higher, for the time being I want to just nibble on some VIX calls for a little mean-reversion trade higher.

CBOE Volatility Index

Create your own charts with SaxoTraderGO click here to learn more

Source: Saxo Bank

Lookinga little closer up, we see that roughly over the past 12 months whenever the VIX dipped below 14, then through a multi-week lens it was a good spot to make a near-term bullish bet for at least a moderate bounce back up to the 15-17 range.

CBOE Volatility Index
Source: eSignal

Management and risk description

The risk to this trade is simply that the VIX stays below 14 for an extended period of time, which is why my stop-loss on this trade is time-determined.


Entry: buy the October 15 strike call on the VIX for $4.70 or lower.

Stop: get out of the trade if VIX has not moved into the 15 area by mid-August.

Target: the two to five area.

— Edited by Michael McKenna

For more on contract options click here.

Non-independent investment research disclaimer applies. Read more
12 July
vsquare007 vsquare007
what is the target price again is it 20 to 25 range ?
12 July
Serge Berger Serge Berger
Hi, price target is '15 area' on the VIX.
12 July
ireland007 ireland007
Hi Serge,i like the trade but i would have thought there is more upside in the short term then 15?
12 July
Serge Berger Serge Berger
Yes absolutely could VIX rally more. But as I laid out in the analysis above, I am using 15 as a first upside price target through the lens of risk management
12 July
ireland007 ireland007


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail