DailyPlay – Opening Trade (VIX) – October 25, 2024

VIX Bearish Opening Trade Signal

Investment Rationale

The market has been on quite a ride since early August, with the SPX hitting three new highs: first in mid-August, then mid-September, and now mid-October. Each time, it has pulled back slightly, only to rally again, as if on “buy-the-dip” autopilot. Since the significant downturn in August, the SPX has formed a distinct wedge pattern, indicating uncertainty about its next direction. Meanwhile, the VIX is reminding us that it’s election season. There is considerable buzz about institutions positioning themselves for either a Trump or Harris victory, along with speculation about what rising bond yields might signal for the upcoming election. However, this chatter hasn’t yet shaken up the broader indexes. Until the election results are final, the VIX appears determined to maintain its grip on the market, showing no signs of allowing the market to run free.

Given this outlook, we speculate that the VIX will drift lower after the election results are in. To capitalize on this, we will implement a bearish Long Put Vertical Spread strategy using puts in the VIX index.

VIX – Daily

Trade Details

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish Debit Spread

Details: Buy to Open 12 VIX Nov 20 $19/$16 Put Vertical Spreads @ $1.57 Debit per Contract.

Total Risk: This trade has a max risk of $1,884 (12 Contracts x $157) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $157 to select the # contracts for your portfolio.

Trend Continuation Signal: This is a bearish trade on an instrument that is expected to trade lower over the duration of this trade.

1M/6M Trends: Neutral/Neutral

Stop Loss: @ $0.79 (50% loss of premium)