From Russia with Love... redux

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The EU and USA are starting to hit Russia with some bigger sanctions now as the international community is pressing the Russian leadership to end the turmoil in the Ukraine.  Both bonds and VIX are rallying but the volatility futures are not really reacting too much near the end of the day.  While I think this is bad for Russia short term it is much better that this is finally happening now.

Charts by Livevol Pro (r)


What this sets up is a longer term trade for Russian equities.  Russian stocks are already the laggards of the BRICS this year, so one more slap down is certainly possible.  Note while the IV jumped recently, it is not near to the level when Russian stocks were in the spring.  The IV is a little higher, as it should be, but still might be a decent purchase too.

There are two trade ideas for me:

  1. The Russians come to their senses now that the West is doing something and they pull out.  Selling downside puts would work here.
  2. The Russians push farther and the RSX takes a leg down to the low 22 handle.  In that case you want to own a straddle.

The Trade

Longer term investors would look to sell the Nov 22 puts.  If you want a shorter term trade buy a Sep straddle and trade the delta if there is a big move.  A savy trader could probably do both at the same time and I bet both should do ok with the straddle allowing a trader to trade any short term drop and keep the IV exposure small.

Disclosure: RSX positions


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