The VIX has been slowly grinding lower day after day, but is this the calm before the storm? As we get closer to late July, a time of year which has seen significant weakness in the S&P, we have to wonder if the VIX is quietly emerging as a significant opportunity for volatility bulls or as an opportune hedge for those holding a hefty equity market position.

Seasonal studies are due to turn decisively bearish on stocks in the coming weeks, which would give volatility a boost. Specifically, Moore Research Center claims the September e-mini S&P 500 future is a Sell on or near July 30. Holding through the first few weeks of August has generated a positive outcome in 12 of the previous 15 years. Obviously there is no guarantee we'll get a repeat of the pattern this year, but this is certainly a tendency that shouldn't be overlooked.

We don't have any reliable source of specific seasonal trades using VIX futures as we do the S&P 500 because it is a relatively new product. But we took a look at the cash market VIX seasonal patterns and identified a tendency for the VIX to bottom in late July and rally through October (although it can be a bumpy ride).

Not only are supportive seasonals looming for the VIX, but the volatility index is starting to look cheap. Most VIX followers study charts of the cash VIX index published by the CBOE (Chicago Board of Options Exchange). This is the benchmark value quoted on TV and in business newspapers. But the cash market VIX isn't a tradable vehicle. To trade the VIX directly it is necessary to go to the futures market or indirectly and with significant efficiency issues through an ETF. The CBOE lists a VIX futures contract, which happens to be the only futures contract traded on the exchange that is focused on stocks and stock options.

It is important to understand the relationship between the CBOE VIX cash market index and the tradeable VIX futures. The cash market VIX index is hovering near 11.00, while the front month futures contract is trading near 15.50. The difference is best explained by a sort of contango in which the futures market is speculating the value of the VIX at expiration of the futures contract, at a specified point in the future, will be higher than the current level. For as long as I have been watching VIX futures, this has existed and is simply an obstacle that must be accepted to participate. That said, VIX futures near 15.50 are also trading at a significant discount to historical standards. We rarely see VIX futures below 15.00, although, as we all learn in the markets, you can never say never.

The daily chart suggests VIX futures could respect the downtrend support line that dates back to January of this year. If so, the VIX could find some sort of significant low near 15.40. However, if it breaks support the decline could see 14.80, or maybe even a quick probe into the 13.80 (although this would be rare). Nevertheless, the odds are in favor of a sharp recovery in the VIX sooner, rather than later.

Keep in mind, trading VIX futures is risky business. Each full point of price movement equates to $1,000 in profit or loss. So, a trader who buys the VIX at 15.50 and sees the market travel to 13.80 would be losing $1,700 before considering transaction costs. On the flip side, if the VIX bounced to early July levels, the trader might be ahead by roughly $3,000.

If you are interested in learning more about trading the VIX, I devoted a chapter to the subject in my latest book "Higher Probability Commodity Trading.