Cheap Vol.

After touching a dizzying height of 80, the VIX has steadily declined the last 15 months. All this despite 10% unemployment and a great deal of uncertainty as to how this scenario will play out. The VIX measures the annual implied volatility derived from options prices on the S&P 500. If you believe the VIX will rise, you can buy a VIX future. These, however, rarely trade at par. You could also buy a variance swap, but this gives you exposure to future realized volatility as well as implied volatility. With the stock market looking a bit heady, I think that the best trade is to go long at the money long dated SPY options and short short dated SPY options at the a slightly lower strike. That is:

Buy SPY Sep 113 Puts at $7.90
Sell SPY Feb 111 Puts at $1.32

Looking at the Greeks, for the put option you are long:
7.7 Theoretical Price
-0.46 Delta
0.02 Gamma
0.38 Vega
-0.01 Theta

For the put option you are short:
-0.35 Delta
0.07 Gamma
0.01 Gamma 1%
0.11 Vega
-0.04 Theta

You are net short the market (good thing), long gamma (good, but this can change), long vega (the original goal), and the theta shows that you are capturing time decay on these options.

As the short dated option expires, I would sell a March option a couple of points out of the money (but never higher than the strike of the long dated options). If the option is set to expire in the money, I would try to roll down at a credit. In all, these types of trades could prove to be profitable with an uptick in implied volatility or with a market drop. There is also a limited downside to this, as your total loss is capped at $7.90 - $1.32 = $6.58. This does not even take into account that $1 - $1.50 that you can take in every month until expiration.