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iPath S&P 500 VIX ST Futures ETN Message Board

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  • hadenh hadenh Feb 11, 2011 3:15 PM Flag


    I am buying June puts and even though the market went up I lost .12 today. I have been trading puts for about a month and this is the first day I noticed that the contract price did not follow the market. Do I need to know something else about puts here

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    • Yes, you need to study Implied Volatility.

      One reason why I don't like options too much is because of this.

      In short term, option prices can be "skewed" because of the IV.

      For example, when VXX goes UP, it can bring both the puts and the calls HIGHER.

      At first glance, this makes no sense - calls going higher makes sense, but puts also going higher?

      Yes, it does happen. So you need to not only track the underlying instruments price change - in your case VXX's price change - but the options IV change.

      The idea is to BUY options when IV is low and SELL options when IV is high.

      So if you are bearish on VXX you will look to SELL CALL options when IV is high and buy PUT options when IV is low.

      There are so many different strategies you can employ when it comes to options and I'm not an expert by any stretch of imagination. Keep posting your questions about options and hopefully more experienced person(s) will reply.

      But to make a long story short, your June puts CAN get higher when VXX is going UP if IV is swelling.

      Of course the good news is that it won't matter too much in long run for your puts. If VXX continues to decay at current rate, your June puts (I don't know what strike price, but I'm assuming its well out of money for now, maybe 20 or 19?) will be worth more than what you paid for. Again, it's one advantage VXX shorts have over VXX longs: the time works in our favor in MOST of time.

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