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Watch out, volatility is set to spike: Trader

The CBOE Volatility Index has rallied this week after recently hitting a year low, rising about 5 percent on Friday. And according to options trader Andrew Keene, the rally in the VIX is just getting started.

"I think the VIX can move higher," Keene said Friday on CNBC's "Trading Nation." "I think the market looks a little toppy, I think it can roll over."

Since the VIX serves as a gauge of expected volatility in the S&P 500, and is often used as a hedge by those holding stocks, it tends to move inversely to the market itself.

The S&P has been struggling to hit a new high, hovering under its previous record close of 2134.72. The index fell more than 2 percent last week.

Keene said he's expecting the S&P to fall further, which generally leads to increased volatility. He sees the VIX rising back to its July highs of 18 by September.

To hopefully capitalize on that move, Keene purchased the VIX September 16/18 call spread for 40 cents. The trade will show profits if the VIX rises above 16.40 by mid-September, with gains capped at 18.

Since he's spending 40 cents to potentially make $1.60, Keene could potentially see a 300 percent gain on his trade.


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