The setup: It’s wash, rinse and repeat with the VIX (the Chicago Board Options Exchange Volatility Index) because it has moved back to the support area and that makes it ripe for another bounce.

The back story: I have written about the VIX several times on this exact same play, each time with the index quickly bouncing off a solid support line at about 9. It’s back there again and there is absolutely no reason to expect things to turn out differently this time; it may not be quite as fast a rebound as we saw just a few weeks ago, but I wouldn’t wait around to make this trade.

See Keith’s early November call on the VIX

And see how that call turned out

The chart:

You can’t miss the solid and consistent support line here, and the bounces off that line show why you can make a lot of money trading the Vix.

The support line defines the risk in the trade, setting my stops on a close below 9.0. On the upside, I think we’re looking at 12 or 13, so you have reasonable potential with limited risk, again.

Bonus point: When it comes to the Relative Strength Index (RSI) on the VIX, you should know that it never really gets to extreme levels. But if you track the RSI on the VIX, you will see that it is currently at its support level as well, which is one more reason why I expect a bounce here.

Listen to Raging Bull editor Chuck Jaffe explain how RSI works

The play: I don’t trade indexes and ETFs myself – I track them to understand how broad market moves could influence my day trades — so I am agnostic as to which VIX-based ETF you use, but my colleague Jeff Bishop of TopStockPicks.com favors the ProShares Ultra VIX Short-Term Futures ETF (UVXY) for both the leverage and its tighter-than-average spread, which makes for efficient trading.

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Jason Bond runs JasonBondTraining.com and is a swing trader of small-cap stocks.

Author: Jason Bond

Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

Now a multimillionaire and a highly skilled trader and trading coach, Over 30,000 people credit Jason with teaching them how to trade and find profitable trades. Jason specializes in both swing trades and in selling options using spread trades, which balance the risk of selling options. Jason is Co-Founder of RagingBull.com and the RagingBull.com Foundation which donates trading profits to charity. So far the foundation donated over $600,000 to charity.

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