Don Kaufman here. 

Look, I'm gonna be straight with you. Everyone's out there celebrating these all-time highs like we just solved world hunger, and I'm sitting here going, are you people insane? I mean, seriously. The S&P's ripping to new records, the Nasdaq's having a party, and I'm over here like, nah, I ain't buying a damn thing. 

Not a single stock.

And before you think I've lost my mind, let me tell you what I'm seeing that nobody else wants to talk about.

Here's What's Got Me Freaked Out

So this morning, right? 

I'm looking at the VIX, and it's trading around 17. Sounds pretty chill. Markets at highs, volatility low, everything's peachy. But here's the thing - and this is where it gets interesting - the volatility futures are telling a completely different story.

The 51-day volatility futures? They're pricing VIX at 20. 

Not 17. Twenty. That's a massive, massive contango, and I mean massive. We're talking about professional traders with skin in the game saying, "Yeah, sure, things look calm now, but in two months? Get ready to rumble."

I've been doing this for, I don't know, decades at this point. And when you're trading at all-time highs with volatility futures that high, that doesn't make you feel warm and fuzzy. It doesn't. 

It makes you go, "Professional traders don't trust a damn thing right now."

By the way, this isn't some equation we're looking at here. This is real money. People are buying these volatility futures because they're saying future volatility will exist.

The Trade Everyone's Missing

Now, I'm not saying the world's gonna end tomorrow. But I'm also not gonna sit here and buy Meta at $740 like some lunatic. The risk rewards here? Are futility. 

They're futility. I mean, how do you get out of these positions if the crap hits the fan?

But here's what I am doing, and this is where it gets good. I found this VIX trade that's basically free money if you understand the math. And the math on this is so clean it almost seems wrong.

You ready for this? Here's the trade.

I'm looking at a VIX spread - buying the 22/32 call spread and selling the 16/14 put spread. Costs you nothing upfront. Actually nothing. 

But here's the beautiful part - you can lose a maximum of $250 per contract, but if volatility spikes even a little bit, you can make $1,000.

That's a sweet little hedge that costs you nothing upfront. Don't get me wrong, you can lose money, but to me it's pretty good when you're at an all time high to play what I term sacrificial lamb.

Why This Works (And Why Nobody's Talking About It)

Here's the thing. Buying a straight VIX call is ridiculous. Why would you pay for the trade upfront? You're just gonna burn and die on the vine with negative decay. But this spread? You're paying nothing upfront. Capping your upside, sure, but it's a much, much better trade.

And here's what kills me - if you fall anywhere above 18.50 on VIX, you're making money. Anywhere above 18.50. We're at 17 right now. That's not exactly asking for the moon here.

The probability on this is pretty damn good. Because remember something - those volatility futures at 20? 

That's not some equation. That's skin in the game. People are buying these things because they're saying future volatility will exist.

By the way, you don't have to use the VIX for this. But the VIX is like, it's a really, really advantageous product for this type of trade.

The Real Story Nobody Wants to Hear

Look, I get it. Everyone wants to believe we're in some new paradigm where markets just go up forever. The financials passed their stress tests - big whoop. Everyone knows how to pass the stress test at this point. It's like a little pat on the head.

But here's what I'm seeing. We just had a massive breach of expected move last week. We were expecting a $115 move in SPX, and we got close to 200 points. That's not normal. That's not "everything's fine" territory.

And now we're sitting here with this giant contango in volatility futures, trading at all-time highs, and everyone's like, "Let's buy more Meta!" I mean, come on.

The bottom line is, you're trading basically at all time highs with volatility constantly saying, "but look out, but look out." If you're an experienced trader, you're not used to seeing volatility at 17 with markets at all time highs. And quite frankly, if you've been in this business for a long time and you understand volatility versus price action, that does not make us feel warm and fuzzy.

What I'm Actually Doing

So yeah, I ain't buying stocks up here. But I will buy spreads. 'Cause if I'm gonna be wrong, I'm gonna be wrong for a couple of bucks, not a couple thousand.

This VIX trade? 

It's perfect for where we are right now. You're not here betting the world's gonna end. You're here saying, "I think volatility's gonna go higher," and that's a smart trade. Or you're using it as a hedge against your portfolio.

And by the way, if you don't want to sell the put spread, you don't have to. You can just buy the 22/32 call spread. 

But I would do the full Monty because from a probability point of view, this is pretty damn good.

Here's the rub - this is actually a great trade for a hedge. It's a great trade for a hedge for a portfolio. So you have a nice big portfolio and you're scared of the downside? This trade has great upside potential and minimal downside. If the VIX goes below 16, that's it. Chicken's done. You're gonna lose 250 bucks. But if the VIX were to spike, you can make a thousand bucks.

The Bottom Line

Here's the thing. I don't care if you think I'm being too cautious. I don't care if you think I'm missing out on the greatest bull market ever. When you're trading at all-time highs with volatility constantly saying "but look out, but look out," that's not the time to get aggressive with stock purchases.

But it is the time to get smart about hedging. And this VIX trade? It's about as smart as it gets right now.

THE ACTION: Set up the VIX 22/32 call spread, sell the 16/14 put spread, 50 days out. Risk $250 per contract, make up to $1,000 when volatility inevitably spikes above 18.50. Execute this week while the contango is still massive and everyone's still pretending everything's fine.

To your success,

Don Kaufman

P.S. By the way, if you want to learn more about how I trade these spreads - and I mean really understand the mechanics behind this stuff, not just the surface level - I've got a whole system for this. Click here to learn more. 

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