Looking to VXX – Just in Case

In Figure 1 below you will see a chart of ticker VXX, an ETF that tracks the VIX Index. 

Figure 1 – Ticker VXX (Chart courtesy of AIQ TradingExpert)


  • The fact that September and October have historically been the scene of a lot of stock market wreckage.
  • That the Fed is due to say “something” about tapering soon
  • The fact that VXX is at about its lowest level in years
  • And the fact that VXX “spikes” to higher ground when the stock market stumbles.

Does it seem at all possible that VXX might be about ready for its next “spike”?  Now understand that that is not a prediction but merely an observation that the possibility seems “ripe”.  So it might be time to consider what I sometimes refer to as a “throwaway” trade.

My definition of a “throwaway” trade is one whereby based on the “possibility” of “something” in particular occurring, one enters into a very low cost trade that has the prospect of paying off in a big way based.  But do not confuse this with a “lottery ticker” mentality, because the trade is based on some realistic expectation that the “something” might actually occur.  Is it really that hard to picture a VIX spike sometime in the September/October timeframe?

So here is one example possibility (though not necessarily a recommendation) using an option on VXX.  This trade was found using software at www.OptionsAnalysis.com.  It involves simply buying 1 November VXX 14 strike price call option for $161.  The particulars appear in Figures 2 and 3.


Figure 2 – VXX November 14 Call Option (courtesy www.optionsanalysis.com)


Figure 3 – VXX November 14 Call Option (courtesy www.optionsanalysis.com)

If VXX were merely to return to its August 30th high of 17.34, this trade would essentially double in value.  If “something” really crazy happens and VXX soars to sharply higher levels the profit could be quite a bit more.

Again, I am not saying that VXX is sure to soar between now and the end of November.  I’m only saying that I might be willing to risk $161 just in case.

Jay Kaeppel

Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro client


Jay has published four books on futures, option and stock trading. He was Head Trader for a CTA from 1995 through 2003. As a computer programmer, he co-developed trading software that was voted “Best Option Trading System” six consecutive years by readers of Technical Analysis of Stocks and Commodities magazine. A featured speaker and instructor at live and on-line trading seminars, he has authored over 30 articles in Technical Analysis of Stocks and Commodities magazine, Active Trader magazine, Futures & Options magazine and on-line at www.Investopedia.com.

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