As we discussed yesterday, the market is at a very critical level right now. Although some good news out of EU can help fuel the next leg up, we have to be careful also about the potential downside.
Since the beginning of August, the VIX has traded in the 30-45 range for the most part. There is a good chance that the VIX might trade down to the 25-level in near term. However, since our portfolio is net long the market and VIX is currently trading at 30, I suggest a Dec 2011 30-40 Call Spread on VIX. One can buy the call spread for 2.25 now, which has a maximum potential profit of 7.75 (~ 340%) in case the *fear index* jump up significantly. We are looking at it as a hedge against our long portfolio at this point.