Higher vix provides more opportunities to hedge

With choppy trading on light volume and bets on the Fed, the VIX has started to creep up over the past few weeks.  While still low compared to spikes seen earlier in the year the increase could provide another way to hedge your portfolio going into 2014.  In low volatility environments it is cheaper to buy options while in high bouts of volatility the duration of the contract can cost considerably more in time value.  This could make for a great opportunity to sell options on some of the winning stocks that you may have and would like to hold for a long term play.  Selling out of the money calls on stocks could provide a much needed boost to the cash of your portfolio to take advantage of the potential pullback that you are partially hedging for.  While selling calls is not like buying a put, your downside is only covered by the amount that you receive from the proceeds of the sale, and if the market rallies you will have limited upside to your investments.  With the Fed expected to taper no later than March and the budget battles of congress likely to take place around the same time, selling out of the money options when volatility it high (think the Federal Reserve meeting on Wednesday) for March could be a good play.  If you believe the market analysts, the markets are expected to move anywhere between 7% and 10% next year, selling option 5% higher on stock that would be the most susceptible to a pullback wouldn’t be too bad of a prospect.  

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