Recently we took a look at ways to trade the exceptionally high volatility we have seen in the markets recently. The techniques we discussed gave us a heads up that a move was in play and gave us the opportunity to jump in. You can check it out here.

It looks like that move is sill in play and we are going to take a look at a way to increase our opportunities to grab a win from this move.

The VIX is an indicator that tracks expected volatility and it has been at the top of a historically high range. I has been higher in the past but it really hasn’t stayed this high for this long. When we looked at it last week we noticed that it was at the top of the range and was giving signals that it could drop. By using an inverse ETF, we are able to exploit that drop. Since the inverse ETF does what the name implies and goes up with the underlying (in this case the VIX) goes down we can use it to trade drops. ETFs make it easy to trade these moves as you can trade them from an equity account. But, if you are trading options now is a good time to look at calls on SVXY.

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It has moved in the direction we expected and looks like it has momentum to move through the 50 and 200 day moving average. A logical price target is the recent high just above 55. As you can see on the recent decline in SVXY it can get choppy. One way to insulate against that chop is to use a longer term option to give the move more time to play out.

We can see the March 60 calls are at 1.80. This is a pretty cheap play that could move a lot if the drop in the VIX continues. If not, it is a relatively low risk trade. We also give ourselves more time for this drop in the VIX to happen. There is a lot going on between now and March that could work in our favor.

Andy Chambers uses longer term options (even longer than a few months) to increase the opportunities for a trade to become a winner. Check out his Market Propulsion approach here.