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VIX Options Can Also Provide Portfolio Protection

VIX options help in making some vital corrections, especially when the market is low on productivity. The Big Picture shows a confirmed uptrend and four distribution days on the S&P 500 and 2 on the Nasdaq. With that being said, traders with a large upbeat may want to be considered adding some protection to it.

One possible way to do that is through an option will deal known as a ladder.To set a call ladder up, the company would sell an at-the-money option of call. Then, they would buy an out-of-the-money ring and further an additional out-of-the-money call.

VIX Options Can Also Provide Portfolio ProtectionThey would receive a credit from selling at-the-money calls and paying the debits for the two purchases of out-of-the-money calls.The aim is to put up the trade for a net credit, or at worst, at zero cost. Thus, they receive an amount of $570 for selling out the 18-strike call and paying up an amount of $555 for buying the 25 and 32.50 strike calls.

As a result, the trade meets up the criterion of being placed up for credit, with the net credit being received that is equal to $15. This trade would give out some protection in the event of a point of an explosive nature with the upcoming weeks.VIX options behave somewhat differently from the stock options, so it has been advised to understand how they work before risking any capital amount.

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