Yesterday we tweeted that we were looking for option trades that would “get short” volatility. Meaning, a trade that would benefit from a decline in general market volatility.
As if on cue, volatility spiked even higher this morning giving traders an even better entry point.
If you are like me and do not believe that vol levels will remain this elevated for an extended time; one on my favorite instruments for playing vol levels is VXX.
VXX is an etf (electronically traded fund) that is reflective of the movements of the VIX futures.
A trade we are looking at for this is the out of the money put butterfly.
Using the September options that expire 17 days from now, a trader could buy one put at the 28 strike, sell two puts at the 24 strike and buy one put at the 20 strike.
AT the time of this writing you could buy this debit spread for .95 cents or so. Max risk is the price you paid for the trade and you have a wide profit range once VXX gets below $27 again.
Analyze the trade yourself and see if getting short volatility in this manner appeals to you and fits with your trading plan.