Monday, February 11, 2013

Long Volatility via VXX

As I have been talking about over and over for the past few weeks. Right now the market direction is up and  I am trying to sit on my hands and not add to any new long positions. The risk/reward to adding new positions with markets at the upper end of their range and at 5+ year highs is very hard to justify. The SPY is possibly starting to show signs of getting a bit tired. With that Volatility (VIX) is at the lower end of its range and is currently in the 13% percentile.

With that, this morning I sold the Mar '13 $22 put @ $1.28. In other words I collected a $1.28($128 bucks), betting that volatility is not going much lower and could go higher between now and March Expiration. By break even is at $20.82. I really like the fact that my Theta is about $2.33/day.

After adding this to my overall portfolio I am net long about 42 SPY deltas.

Additionally this week PBI will be paying its quarterly dividend. /The covered call I sold against my stock position is about $2 ITM. So I will update the original post on this position as to whether I get exercised to sell the stock or if I go under the radar and keep the dividend. Either way I make money :)

Good Luck Trading!

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  1. Today I rolled this position down a strike and out a month for a $0.23/share credit. The VXX was down again today and the market was again making new highs. Volatility continues to be a the very low end of its historical range. I continue to like the prospects of being long volatility vs the longs in my portfolio of positions.

  2. We finally got that pop in Volatility today. I used it as an opportunity to book some profits on this long vol play. This move put Vol back at the historical average. To me given the strength of the markets I see that as a good time to exit with a nice gain. Still short a call spread on the SPY as a hedge against my long positions.