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The CBOE VIX Is Standing Between You and the Fiscal Cliff


If there's one single tool investors should know, it's the CBOE VIX. It can be used to protect your portfolio, or it can be used as a revenue source through speculation. Here's how.

MINYANVILLE ORIGINAL The post election market-moving event is the looming fiscal cliff. The term, coined by Ben Bernanke himself, describes the soon-to-get-ugly political battle over conquering the growing US national debt. Does the Obama victory mean tax hikes for the rich or on capital gains? How will this affect the US markets? The uncertainty alone is going to exacerbate the effects of greed and fear on the market.

The CBOE VIX (^VIX) is one tool that investors can use to hedge against large movements in the marketplace. The CBOE Volatility Index is a key measure of market expectations of volatility, or a measure of investor sentiment. As the market falls, the CBOE VIX will rise because of a greater interest in using options as a hedge. With the fiscal cliff looming, the CBOE VIX can be used to protect portfolios or it can be used as a revenue source through speculation.

My Trade: Buy VIX Dec 20-25 Call Spread for $1.00

My risk: $100 per one lot

My reward: $400 per one lot

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