A trader explains a VIX futures trade that returned 6:1 profit. The setup: VIX hit 16.8 while the S&P 500 failed to break its all-time high, signaling seller pressure. The trade waited for VIX to test that low, confirm a bounce, then entered at 16.89.
This trade realized in our multiple of six to one. So at the time the VIX futures the March contract had a contract low at 16.8. The S& P was failing to break out of a previous all time high. What I saw in the S and P was the fact that the day before I took that VIX trade the S and P failed to break above all time highs. If we see that sellers are factored into the market from the S and P failing to break above all time highs we can then assume that the S and P is going to pull back and inverse related to that VIX is going to go up in value. The S and P E S futures had a current pattern that I was looking to capitalize on. It was selling off on four out of the last five Fridays. Basically I waited for the VIX to come down and test that contract low make sure that it was able to bounce and I got in once it showed that it was able to bounce at an average cost of 16.89.
