VIX Volatility Set to Rise Further

The CBOE Volatility Index has rallied this week after recently hitting a year low, rising about 5 percent on Friday. And according to options trader Andrew Keene, the rally in the VIX is just getting started.

“I think the VIX can move higher,” Keene said Friday on CNBC’s “Trading Nation.” “I think the market looks a little toppy, I think it can roll over.”

Since the VIX serves as a gauge of expected volatility in the S&P 500, and is often used as a hedge by those holding stocks, it tends to move inversely to the market itself.

The S&P has been struggling to hit a new high, hovering under its previous record close of 2134.72. The index fell more than 2 percent last week.

Keene said he’s expecting the S&P to fall further, which generally leads to increased volatility. He sees the VIX rising back to its July highs of 18 by September.

To hopefully capitalize on that move, Keene purchased the VIX September 16/18 call spread for 40 cents. The trade will show profits if the VIX rises above 16.40 by mid-September, with gains capped at 18.

via CNBC

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza