The Nasdaq is flirting with correction territory as it's down nearly 9% in less than a week.
The sharp downturn has volatility roaring back into markets and sending weak-kneed investors heading to the sidelines. The VIX is up 18% in the same time frame.
But far from a panic-inducing downturn, this shakeup could play out very nicely for traders. You see, we've been predicting volatility would increase around this time of year, and it's healthy for markets to cool off a bit amid a runup. That doesn't mean you have to stop making money.
Money Morning Quantitative Specialist Chris Johnson has a great way to deal with the surging volatility headed our way. But he is not going to just defend against it. Rather, he has an options strategy designed to make you real money just as volatility expands.
Remember, volatility gets a bad rap because most people can lose money, and probably sleep, when it grows. That's because they are trading the wrong things when it happens. Options traders happen to love it because volatility means prices are moving. That means more profits.
You may think that the only way to profit from volatility is to buy a put or call option on your favorite stock and hope you picked the right one. What if there was a way to profit on raw volatility, no matter which way the market moves - higher or lower?
Well, there is!
And using this options trading strategy could be your ticket to big paydays this fall.
Here's how to use it...
This Options Strategy Thrives on Volatility
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Take a look at the trade Chris has for you today in which you actually buy volatility. As we mentioned above, the CBOE Volatility Index, also known as the VIX, is a measure of market volatility.
It's created by looking at near-the-money options on the S&P 500 index. It works because options prices depend on volatility. The higher the volatility, the higher the options price, and the higher the value of the VIX.
The VIX tends to "spike" higher when sellers take control of the market, which means that using an option on the VIX as a hedge requires a little more attention to the intraday activity. To put things into perspective, the VIX spiked more than 400% in March while the S&P 500 dropped around 30%. Chris' subscribers jumped on for quite a ride!
Last week, the VIX jumped up to about 35 from the range between 20 and 25 it had occupied for weeks. Now Chris expects it to pop up to the 40-50 range this month. And that is where you can make some pretty nice coin with this trade:
Buy to open the Nov. 18, 2020 CBOE Volatility Index ($VIX) $30 call for $7 or less.
This means the VIX call option with a $30 strike price expiring on Nov. 18, 2020. You will have two months for volatility to go up, but as history is our guide, we should not have to wait long at all.
He Made Millions Trading for an Hour Before Breakfast
Andrew Keene was living with his parents. Two years later, he had $5 million to play with - all because of this one strategy.
The crazy thing is you can do it in less than 90 minutes a week.
To see how easy your life could be, click here.