Traders have traditionally looked to extreme high and low levels on the VIX as a signal that a market reversal may be on its way. Is there a reliable, high probability method for trading the VIX?

Analysis of the VIX reveals that historically, this volatility indictor for the S&P 500 has never traded made a material drop below the 10 level. With the recent sustained uptrend in the market on healthy volume, the VIX settled lower with each passing day until the 10 level was reached.

This signaled a potential trading opportunity. Options on the VIX are now available, which makes it possible to trade the fluctuations of the index. These options trade a bit differently than the majority of options contracts and follow a different expiration schedule.

High Probability Options Trading On The VIX

Nonetheless, traditional option strategies can be applied. Taking advantage of the extreme low level of the VIX, we took a look at the available options and constructed a high probability options trade.

A trade was constructed that anticipated a return of the VIX from 10 to higher levels. Premium was sold at even higher levels to finance the trade an add second layer of potential profitability.

As you can see from the above risk graph, we have seen the VIX return from 10 to a level of approximately 12. The trade turned profitable and is perfectly positioned for additional profitability as we now contemplate rolling our short options for a profit and an additional credit to a higher strikes. That adjustment will lock in profits, increase our cash balance, and expand our profit zone.

If the VIX returns to the 10 level, additional premium can still be sold that will reduce the cost of the trade as well as the overall risk. There is a sizable cushion for further upside movement and we hope to expand that upside cushion so as to accommodate the VIX anywhere within its traditional range.

Discover More About Trading The VIX

High probability trades like this are the subject of our High Probability Trading Report. which outlines the methods that we developed for generating profits on a consistent, reliable basis. These materials are now in production and will be made available for sale early in 2007. But there is a way you can get access on a complimentary basis.

This VIX trade will be profiled in detail, revealing exactly how the strategy can be used safely and reliably. Our materials are not intended for beginners, and assume a foundational understanding of options strategies and theory. That level of knowledge and understanding is within your grasp. right now!

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Ron Ianieri’s Options Mastery course is the premiere options trading course for building that all important foundation and is the only course we recommend for that purpose. It also happens to be one of the more affordable course and is available in a limited release until Thursday, December 14, 2006, or until they sell out.

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