Maybe it was just an April Fool’s joke, but prices don’t lie. The S&P 500 hit a 2019 high yesterday, and is the highest it’s been in nearly six months. The slowdown in earnings forecasts were offset by stronger manufacturing data, and up it went. Ugh. Unsurprisingly, that rally also pushed the VIX down, as well as the VVIX, the VIX of the VIX. That low VVIX means VIX options are relatively inexpensive, and that means if you think that the market might drop and push the VIX back up, long debit spreads could be a more attractive strategy. Of course, you may want to give a VIX strategy some duration just in case it takes longer than expected for the market to drop. But if you are bullish on the VIX, the long call vertical that’s long the 15 call and short the 17 call in the May expiration with 49 DTE is a bullish strategy that has a 61% prob of profit at expiration and that generates $.02 of positive theta as the debit of the call spread is less than the intrinsic value of the long 15 call with the /VXK9 future at $16.00.
Opened 19/04/02 for $.70 debit
Closed 19/05/07 for $1.04 credit