Inside the volatility-trading strategy one investor is using to capitalize on Trump market madness

There’s hardly been a dull moment for the stock market in April — particularly for investors who profit from volatility itself.

For the first time since the pandemic-driven stock-market crash in early 2020, the CBOE Volatility Index, or VIX, crossed over the 40 mark this month.

The VIX typically moves in the opposite direction of the S&P 500 and measures the implied volatility investors expect over the following 30 days based on the index’s options contracts. It reflects how much traders are willing to pay for protection against market swings: When the market plummets, the cost to hedge against downside risk rises, and the VIX soars.

Investors can use the index as a portfolio hedge or to bet on the market’s direction. Jermal Chandler, the head of options strategy at Tastylive and a former instructor for Cboe Global Markets, occasionally does the latter.

When the VIX goes above 40, Chandler sees it as a rare opportunity to buy options contracts that profit from declines, known as puts. The VIX doesn’t usually get that high, and when it does, it doesn’t tend to stay elevated for long. The put options allow him to profit if the index falls by enough.

“Once it goes above 40 to 50, which we really don’t get those too often, eventually the market simmers down,” Chandler said. “There’s tariffs, people were very worried about it. Now, as time has gone on, people start to calm down a little bit, there’s this 90-day pause. Eventually, things settle in.”

VIX put options are sold for monthly periods. A few weeks ago, Chandler bought May puts at a strike price of 28. If the May VIX futures dip below that level before the end of May, Chandler earns a profit.

As of April 28, his options were in the money, with May VIX futures at 23.8.

Investors still worry that President Donald Trump’s trade war could ignite a recession in the months ahead. That could send the VIX spiking again.

If volatility revives and the VIX resurges past 40, Chandler said he would sell his May put options and buy a June put option. While the May option would be out of the money, it would still have some extrinsic value based on how much time is left on the option when he sells.

“I’ll just roll it out to June to try this situation again because I need some time for the market to calm down,” he said.

For investors who simply want to bet on the direction of the VIX, Chandler said the VIX Micro Futures offer a low-cost way. But it’s a much less predictable approach, and the macro outlook is exceptionally hard to predict.

Chandler said one sign that fears are unusually high right now is how flat the VIX futures term structure is. Whereas investors would normally pay a higher premium on months further down the line because of a higher degree of uncertainty, futures are trading at 23 for every month out to September.

“May should be trading much lower than June, which should be trading lower than July, and so on,” he said. “When those are kind of similar,” he continued, “that’s a situation where the market is fearful.”