I hope this story helps you. I have watched this thing go down for a long time now but I was always more of a biotech guy. Had some bad experiences there and saw how scary it can be (AFFY anyone). So I sold as many of the March 34 calls as I could. I got a margin call on the rise this week and lost 20% of my account in a single week. It looked like this would never have a serious rise. Any bounce seemed to be limited to 5 or maybe 7%. The position got liquidated near the high of the week on VXX earlier today. Now I am all in cash. The awful thing is there is almost no way this will hit 34 by March expiration either. Just want to vent and let everyone know it's not worth it. If the calls had expired worthless I would have made maybe 4 or 5% which is great for a few weeks but I booked 20% loss and could have easily lost my whole account.
You learned a valuable lesson about VXX calls - they will move a lot more than the delta against you on spikes as each move up almost always carries a spike in volatility of volatility. As other traders have pointed out, stress-test your portfolio against a spike - you should still leave some room to adjust the trade if necessary. Also consider that a 4 point move up won't price the 34s to what the 30s were - it will be much higher and your margin needed will also increase against you as well (higher underlying price and less OTM amount.)
That's exactly right. I don't trade options but I watch the pricing sometimes. When VXX was 22 and the 30 calls were 20 cents, you might think the 34 calls wouldn't be much over 20 cents when VXX moved to 26. They were instead over 50 cents. I bet there are many many people who have seen the VXX chart and said hey it never goes down, or if it does spike, it doesn't spike much. Then they find out they can only withstand a 10% spike without a margin call so it goes up 20% and they are out at a huge loss. Then within a week it's usually back below the price it was when they shorted the calls. 20% loss of capital is harsh, but imagine how much worse it would have been in 2011 when this rocketed from 20 to 60. Could have owed broker a lot of money.
This is a good example of why I do not use calls. I simply short VXX with measured cash adding on pops withdrawing some on drops and compounding the bet. Unless something worse than 2008 happens I am covered with out problems or stress!
And if something happens like 2008 we have over 1 year notice and even in the months leading up to Oct 5, 2008 EVERYONE knew what was about to happen! I was short Goldman and Potash on October 5th, 2008 while on the beach in Cuba. I remember seeing my position and I went to the beach to play volleyball. It was a good day.
You will see that kind of event coming!
Man are you living the good life. First being able to figure out the market and having millions, and doubling your account every year. And second being in Canada so you're "allowed" to go to Cuba. Amazing situation.
OP will be OK as long as he just shorts this thing. The problem is if he goes short VXX with 1/3 of cash he needs it to drop 75% to make those losses back and that could take 2 years.
Wow does that stink. Those calls are going to expire worthless for sure. If only you could have held on. You'd have made your 5% instead of losing 20%. How can you even pursue a "strategy" where you can lose 20% of your money in a day?
This is far from the worst this board has seen. There were some people who were 100% short VXX unhedged in 2011 when it went up over 200%. Couple of them ended up actually owing their brokers money in the end.
How are you naked puts and wanting VXx to go down. You mean you are long put spreads? If so which strike price for the June and sept? You probably will be ok. I covered,the march 34 calls at nearly 40 cents and do not expect they will get near there to re enter the position. I never would have believed to lose 20 percent so fast. I hope,your strategy at least has higher reward possible then mine.