VIX HEDGE

As you guys know, we’ve spoken a fair amount about how to hedge into the election. I’ve attached two examples which together become a call vertical spread in the VIX.

Basically, the purchase of the VIX 19 calls for $1.00 and the sale of the VIX 24 calls for $.50. The chart shows these prices.
As VIX spiked, the $19 calls ran from $1.00 to $2.40 and the 24 calls (our shorts) went to $1.00.
Thus the spread expanded from $.50 or $500 per 10 contracts, to $1.40 or $1400 (again per 10 contracts).
I usually recommend 20 contracts per $100,000 in portfolio value, so the insurance cost would have been $1000 or about 1% of total portfolio.
The subsequent move took that from $1,000 to $2,800 (based on that 20 contract hedge).
Over the same 5 days the S&P has fallen from $2132 to $2090, a loss of 1.9%, which is $1900 on a $100,000 portfolio.
Meanwhile our hedge ran to $2800, a net gain of $1800 (paid $1000), so you can see the insurance covered us almost to the penny.
vixnov192vix24