Wednesday, April 3, 2013

Long Vol in Low Vol Environment

On Monday I posted that I moved to 95% cash and that I thought short term that we could see some weakness in the markets. I also added a comment to that post that because of this thesis, I decided to get long volatility via the VXX. I sold 5 May '13 puts @ $1.24 with a $19 Strike price.

Above I have a 4 hour chart of the VIX. The thing I want to point out is that the VIX has been below 15 for all of 2013 except for 2 days. One of those days was the 35% spike on February 25th. I have 44 days til expiration to see a spike in volatility and plenty of time for theta to work for me. My goal is to capture about 50-70% of the premium I sold.

My break even is $17.76 and I would look to roll if we actually continued lower towards my break even before I close the trade. Remember when we had the spike in VIX in February I was short vol with a covered put position in the VIX. At these prices I don't like that trade as much, which is the justification of being long.

Remember I took off the VXX, I think last week for most of the max return with plenty of days til expiration.

Good Luck Trading!

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  1. So we got a decent pop in the I write this the VIX is up almost 15%. The VXX is not tracking well today, as it is only up about 4.5%.

    I used this pop to book some gains by taking off 2 of my short May contracts in the VXX.

  2. Today we got half of the down move that I am expecting in the SPY.

  3. With another pop in Vol this morning I took off the remaining 3 contracts. I debated holding them over the weekend of for longer in the day to try and collect some additional theta. But I don't want to have to keep my eye on the market all day.

  4. Thanks for sharing. It's an interesting trade using VXX. VXX is a product for very short-term trading because longer-wise, there is a negative yield problem for VXX (in the long term, it will go down and then has a reverse-split).

  5. Hey Jack...I agree, that long term this product is naturally a decaying asset. Thanks for the comment.