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How to profit from a September volatility spike

A stock chart is displayed on a terminal as traders work on the floor of the New York Stock Exchange.
Daniel Acker | Bloomberg | Getty Images

Some traders are worried the market has grown too complacent heading into September, especially considering recent hints by Fed officials of a possible rate hike during the month. Below is where investors can hide during a Fed-induced volatility spike, if history is any guide.

"Despite increased probability of a rate hike by the Fed in the FOMC meeting on September 21, no major moves are being priced in by the market and the absolute level of SPX implied volatility is also low. We recommend buying protection around the FOMC meeting," Barclays analysts told clients in a research note on Tuesday.

A similar sentiment was echoed by MKM Partners derivatives strategist Jim Strugger, who wrote:

"It's curious that with markets in a period of true data-dependency, where a stronger-than-expected nonfarm payroll number this Friday could push up odds of a rate hike at the September 21 FOMC meeting, implied volatility of TLT [Ishares Lehman 20 Year] and UUP [PowerShares DB US Dollar Index Bullish Fund] is hovering near the lows of the last two years. "