Market volatility, measured by the VIX Index, has remained low since April. Investors use VIX to gauge market risk and fear. The VIX Index closed at 17.38, near the year’s low. A long call butterfly strategy using VIX options can profit if volatility rises. This strategy involves buying and selling call options with defined risk and potential gain.

The long call butterfly trade using VIX options has specific outcomes based on VIX levels. A VIX below 20 results in a $50 loss, while a range of 20-30 benefits the trade but may impact stock portfolios. A VIX above 30 leads to a full loss on the trade and potential stock drops.

The main risk for the VIX trade is if VIX rises above 30. Using VIX options can provide affordable protection against stock market declines. Traders should understand the differences between VIX and stock options and conduct thorough research before investing. Options trading carries risks and requires caution and consultation with a financial advisor.

It’s essential to remember that options trading involves risks, including potential losses. This article serves as educational material and not a trade recommendation. Readers should conduct their research and seek advice from a financial advisor before making investment decisions. The author did not hold any positions in the securities mentioned.

Read more at Yahoo Finance: This VIX Butterfly Spread has a 9 to 1 Reward to Risk Ratio