Want to Bet Against Wall Street?

If you’re a boxer, the first thing you have to learn is how to bob and weave. You have to avoid punches and punch back at the right times if you want to survive out in the ring.

Other forms of martial arts fighting, like tai chi, focuses on using your opponents energy against himself. A person who fights tai chi doesn’t just swing like a drunk Puerto Rican in the Bronx. He sits back and actually waits for the drunk Puerto Rican to rush him… then he quickly gets out of the way and pushes the drunk bastard down to the ground… kicking him while he’s down.

So if you want to make money on Wall Street, I propose you use the crowd to your advantage by betting against them. Some people call it being a contrarian. Others call it having balls. Whatever you want to call it, I’m going to show you one way to be a contrarian right now.

Check out this news clip from Bloomberg…

Trading of options on the benchmark index for U.S. equity derivatives surged to a record in a bet that the so-called VIX may decline in the next two months.

“It looks like they’re trying to short the VIX in January and February,” said Dan Deming, a VIX options trader at Stutland Equities LLC in Chicago. “They’re selling the call spreads so that would indicate they think it’s going to be under pressure.”

More than 634,000 calls to buy futures on the VIX, as the Chicago Board Options Exchange Volatility Index is known, traded today, six times the four-week average. Eighty-seven percent of those contracts changed hands as part of two spread trades, according to data compiled by Bloomberg. The calls were probably sold, meaning traders were betting the VIX would decline, Deming said.

Now, over the longer-term I think the VIX is going down. So these smart asses selling calls are probably going to make some cash doing so. But there is a risk that the VIX pops up to 30 in the next 3-5 day sell-off which could happen at any time.

In fact, I’m pretty sure it’s going to happen either late this month or in early January.

Early January is more suspect because banks will be forced to put some junk assets back on the balance sheets as FAS 167 comes into effect. In other words, banks will have to use market value to price these assets and may lose a few billion in the process.

Plus, we should see lower consumer spending in January as jobless, cash-strapped individuals with maxed out credit cards try and pay off their newly acquired debt.

That’s going to act as a drag on retailers and probably spike the number of layoffs that happen after the holidays.

In the end, it’s likely that we see a big sell-off in the next few weeks. And when it happens, these VIX call sellers will turn into buyers and push the value of VIX calls through the roof.

I know what side I’d rather be on.