The VIX is your friend, not your foe. The massive resurgence in volatility (as measured by the Cboe Volatility Index - VIX ) has revealed market vulnerability coupled with significant uncertainty. But it has also uncovered market opportunity.
With the VIX hitting a multi-year high of 65 this week, elevated options premiums offer higher risk/reward scenarios. I want to establish a bullish view on the S & P 500 ETF (SPY) that allows an investor to withstand additional volatility reverberations while positioning for markets to move higher into year end. .
VIX YTD mountain Cboe Volatility Index, YTD The VIX, also known as Wall Street's "fear gauge", vaulted above 60 earlier this week, the highest since pandemic induced volatility back in March 2020. It is the index's highest reading outside of two unforgettable market meltdowns, the Great Financial Crisis stemming from the failure of Lehman Brothers in September 2008 and the global pandemic, Covid-19, in early 2020. I believe we are still in a range when it comes to the S & P 500 and that using technical can assist in establishing a view.
Utilizing a risk reversal may test a trader's stomach of owning the market during these acute moves but, it also allows an investor to participate in a swift move higher if and when markets calm down. The Trade Sold the SPY $500 10/18/2024 put for $8.00 Bought the SPY $550 10/18/2024 call for $8.
25 This spread was established when SPY was toughly trading $530 This risk reversal cost $0.25 or $25 .