The VIX has been surprisingly crushed in the previous month, considering all of the Euro debt crisis talks and talk of QE3. S&P 500 futures (ES_F) seem to be trading flat or in a directional trend these days without much movement nor fuel for the fire. I am puzzled why the ES is reaching near pre-crisis highs without much good news appearing. Unemployment has been above 8% for over 40 weeks, global economies are worried about sovereign defaults and Treasury yields are trading at their peak.
From the chart below, you can see that the current price of the VIX is trending toward the period low of 14.26. In my opinion, I think that right now is a great time to go long this index using a bullish option play, given that I do not think this index can go lower, and I do not think that volatility will stay this low in these times of economic uncertainty.
The current front month VIX is trading at 13.66, implying a 3.9% move in the index over the next 30 days. I believe that the VIX is trading at a deep discount as I believe that global tensions are building up for ia sharp movement in the ES with a highly probable movement outside of the 30-day estimated value. If I were going to trade this contract outright, I would put my target around 30, a level easily reached with any movement in the VIX.
David Cornes holds a degree in economics from the University of Montana.
