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ProShares Short VIX Short-Term Futures Message Board

  • ralphjlindblom ralphjlindblom Feb 7, 2013 11:46 AM Flag

    Investment Strategy

    I am getting tired of thse daily ups and downs and trying to get in on the bottom.

    I have decided to sell covered calls against my position, starting with the February 90s. Each month, I will increase the strike price of these covered calls by $5 (until it is in the mid 100s where it may be at $10 increments).

    This way, if the ETF price exceeds my stock price, I make the monthly contango, as well as keep the option premium. If it does not exceed the option strike price, I keep the premium for selling the option.

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    • Anybody sell covered puts? I love writing covered puts on VXX because VXX has weekly options, so you get continuous cash flow on a weekly basis. And what I've realized is that selling naked calls has relatively the same risk and reward as selling covered puts. So now, to save me money on commissions, I just sell calls at a strike that's above resistance and set up a conditional buy order in case the strike price is hit. So far, I've been making around a thousand a week and I don't need to sit in front of a computer and daytrade. I just let the options expire worthless. And also on the side, as part of my longer-term investment strategy, I buy SVXY when it dips and I short 100 shares of UVXY every month using Dollar Cost Averaging. Just implemented this strategy about 4 months ago and I'm up nearly $30k for the year...

      • 1 Reply to mistamandalay
      • Can you let me knoww hat calls you are looking at for this week.

        The 22 calls are bidding 12-15 cents so you would have to be selling between 67-83 weekly calls to net $1,000. Also, how much margin does this take and what is your conditional buy price.

        As far as the buying SVXY on the dips and shorting UVXY, I also play both sides, but with a different approach. I own the SVXY stock, sell covered calls, buy additional shares when it dips, sell the additional shares when Spot VIX drops below 13 (SVXY jumps higher) and buy put options on UVXY (you can read my two trading strategies on these options on the UVXY message board).

        Best of luck,


    • interesting svxy is up 0.6+% whereas both vxx/xiv are both flat. low float? contango + NAV /asset?

    • 'evening Gents,

      I've been studying various strategies with SVXY (as well as the other VIX proxies).

      I've been very impressed with the (inverse ETP) decay it has suffered with recent VIX swings and want to utilize that as well.


      1. I'm now out of the SVXY 'long' market. Instead, I'm playing the long side with ITM calls at least 6 months out. I think that the risk:reward ratio is greatly improved. You can buy a Jan 2014 leap 75 call for $29, just a $13 premium to the $91 close. Breakeven is $104 in 9 months.

      My block box gives the following range of Jan 2014 estimates:

      VIX 12.5 contango 5%, SVXY $146
      12.5 & 10%, $233
      VIX. 20 contango 5%, SVXY $88
      20 & 10%, SVXY $140

      range: 88 - 233

      My best guess for January would be 150-160, yielding a possible 5 banger for the leap.

      But what I like just as much is the decreased risk. The fear is the volatility spike, not the small rumbles of recent months, but the big kahuna. MAX risk on the leap is 100% but it's "only" $29. If you owned the ETF at $91, it could plummet greater than 40 bucks.

      Options traders c/r/*/p out when they overleverage. If one were only comfortable owning 200 units of SVXY, he should not but more than 2 leap contracts.

      to be continued...

      • 2 Replies to bustin_ur_chops
      • You may want to look at your math again regarding the "five banger"

        If you buy a January 2014 leap with a strike of $75 and it goes to $150, the option value will be worth $75

        Since you paid $29 for this option, you gained 158% on your trade (not 500%).

        Still a good trade as long as we don not have any large spikes in the VIX. If we do, since SVXY resets every day, you will not see SVXY any where close to $150 by September.

        To protect you in case of this large spike, then out of the money SVXY puts would be a good play.

        Best to you,


      • part 2:

        2. Take advantage of decay. Sell covered calls as Ralph has been doing or enter call spreads.

        On March 20, I entered my first SVXY spread ever. First I sold my equity @ $89.5. I looked at the Jan 2014 calls but I would have wanted to sell a Jan 150 or 160. Nothing pricier than 120 was available so I looked at September.

        I decided that a target price of 120 would be optimal and then I calculated the highest return at the debit for various spreads. The calculus tilted towards the 70-120 spread that I bought at a $21.80 debit. I was willing to lose $40/share on the underlying that I sold to finance the trade, so I bought 2 contracts.

        MAX loss per contract. 21.8
        MAX gain = (120-70)-21.8 = 29.2. 134% gain in 6 mths
        breakeven 91.8

        In the past, selling SVXY puts has been very lucrative. Again the trick is to calculate a reasonable target price and then choose an ITM target price that will finish worthless OTM. On Mar 21, I sold Sep put 105 for 25.80. Breakeven on this play is $80 and the put will expire worthless if SVXY closes above 105. Downside, each short contract eats up $4700 of margin buying power. And even if my spec is correct and the put spirals towards zero, the margin requirement will remain unchanged until expiry. (go figure, sec rules...)

        Happy huntin'

        Bustin, Contango the boxer, Backwardation stoned on catnip, and RollYield the ferrer, MBA

    • and what do you think will cause it to go to 30 or 40???????

      What if an asteriod comes down and hits the earth????

      • 1 Reply to ralphjlindblom
      • ralphjlindblom, in light if what happened in Russia today, would you like to reconsider your strategy? :)
        But, seriously. I don't understand your strategy. Maybe I'm missing something, but if you sell a covered Call at $100 Strike Price ST. And SVXY goes up to over $100, aren't you going to lose the ETF? And you will not make any more money on it if it goes to $150 or $200? Please explain. Maybe there is a better insurance strategy out there.

    • And if it goes from 86 to 20 what will you do? Start selling the 25 or 30 calls?

      • 2 Replies to con_law_misery
      • I agree that it looks good now because of the FED. I also believe the FED will still prime the pumps for the rest of this year and maybe all of next year.

        Once this stops, I believe Spot VIX and futures will jump and I plan on exiting this position before this jump. I then believe that Spot Vix will go back to its normal ranger of $16-$18 with some highs and lows between these ranges. I plan on getting back into this position and this trade once Spot Vix hits $18

        As far as my net worth long position, I would say it is about 25% (not counting my equity in my house). The monthly option premiums I receive I keep in cash and would be a buyer of additional shares if this drops 15% (while the FED is still priming the pump).

        The above is my personal trade and everyone should do their own due diligence and investing and not invest/ trade based on my beliefs.

        Good luck.

      • I seriously doubt it will goes to 20 (unless they split the stock).

        Anyway, I will just sell the calls at $5 higher and take whatever premium it is.

        If this ETF goes down, over time it will come back up.

        This is my way of holding it for a long time, earning some extra option money and hopefully getting the monthly contango.

        Good luck to you.

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