A VIX Hedge Using This Options Strategy

Pravit Chintawongvanich of Macro Risk Advisors suggested on Bloomberg Markets that investors should consider an options strategy in VIX as a way to hedge the macroeconomic risks ahead.

He explained that there are three main events ahead that could cause an increase in volatility:

• OPEC meeting on November 30.
• Italian referendum on December 4.
• December FOMC meeting.

Currently, the near-term VIX futures are trading at a big discount to the long-dated VIX futures, Chintawongvanich explained, and he sees an opportunity to hedge the market risk with the December expiration options.

He wants to sell the December 13.50 put and use the proceeds to buy the December 19/27 call spread in VIX. The trade would make money if the VIX trades above $19 at the December expiration and it can maximally make a profit of $8. Below $13.50, the trade is going to lose money.