Yes. I read the posts on backwardation. I still don't fully understand it. But, I do appreciate thre graft showing the tendency for backwardation being short lived (days), where as contango seems to last much longer, at least with VXX.
I know of a very wealthy man that makes money by earning a few quarters at a time. He is very wealthy because he has satellite businesses all over the place making these few quarters at a time.
I have learned from that, and instead of trying to hit a homerun with one investment, I set up many little spreads in various etf's and occasionally with stocks that I have folowed over the years.
I trade with a discount options friendly online brokrage account and base charge ~ $5 then .65 per contact up to 8, then .15 beyond 8 contracts. The cost is obviously higher than making simple stock buy and sell trades, but the ability to protect your capital and the leverage makes it worthwhile to me.
Before I traded options, I was always trading stocks on margin, and paying margin interest, and got many margin calls. Since trading options, I never trade on margin.
I don't exclusively trade options though. I like having a few stocks that could potentially shoot to the moon, just in case market has a major rally.
Options allow me to play the market many different ways and I also enjoy learning about options. Its almost as addicting as angry birds.
Good advice, but have you seen the cost of options? Let's say I use the 2012 Calls and sell the 50s at 9 and buy the 70s at 5, I can make up to 100% on this. But the risk is that I can lose 400%, so I have to keep just as much money tied up on this as I do on my short. I am taking the risk here that the stock will generate a margin call on me. I am keeping back 500% in case of this and have more cash to put in if needed, but you are right, I should really put in a stop loss instead.
Let me think some more about the cost of the bull spread, this is a good suggestion. How much do you pay for options?
Did you see that backwardazation is down to 6%?
I suppose my shortfall is a good understanding of contango and backwardation, in terms of calculating the magnitude of its effect, duration and determining factors.
I know such knowledge separates the amature traders from the pro's.
Backwardation must be reason VXX is up today despite hardly any volatility in the market today.
Note, EU situation has improved, but Obama's economic plan likely to be opposed, my guess is Market will be at a standstill for a while, so VXX may slowly drift higher secondary to backwardation, but very unlikely to take my bear call spread out by Friday.
Someone needs to tell Obama that making $200,000 a year gross salary doesn't make one a "millionaire".
You guys crack me up. While I agree that eventually this goes down like a rock, especially with contango, now and actually for the forseeable future this isn't one of those times. So certainly don't short hoping to catch the top. Wait for backwardization to end and contango to take place and then ease your way in. Personally I've crushed it with TVIX this year and there seems to be a pretty good floor in right now (backwardization certainly helps) that will keep VXX and TVIX elevated for quite awhile still. To say either ETN is going to "fall like a rock" at this point is foolish.
Sorry to hear that one jermaine. I have also read and considered the posts on this board and if not a myth, then not very smart. Everyone should realize that this stock is very volatile, goes up, goes down. You can learn a trading lesson and not repeat it. Bottom line is never convince yourself a stock can never go up or go down, and set a reasonable loss target, be willing to take that loss(or gain). Good luck to you in the future.