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ProShares Ultra VIX Short-Term Futures Message Board

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  • ralphjlindblom ralphjlindblom Aug 3, 2012 9:12 PM Flag

    writing covered calls to bring cost basis down is this good?

    I write covered calls on stocks and tried it on this ETF and lost a bunch of money.

    Why? Because, long term this ETF will decay each month faster than any option premium you receive.

    Typical case:

    Without writing the call
    cost basis $7.20-market value $6= 1.20 loss

    Now let's assume different prices in Sept

    Price of $7

    Cost basis $7.20-.65 option-7 ETF= profit 0.45

    Price of 6

    Cost basis $7.20-.65 option-$6 ETF=loss of 0.55

    Price of 5

    Cost basis $7.20-.65 option-$5 ETF= loss of $1.55

    Price of 4

    Cost basis of $7.20- .65 option- $4 ETF= $2.55 loss

    Now, what do you think this ETF will be worth in 1 1/2 months?

    This will guide your decision.

    Remember, you are fighting against contango as if we get no change in spot VIX in 1 1/2 months, then Sept future VIX of $19.36 will drop to $15.69 or a 19% drop (or $4.86 based on todays price).

    The one good thing you have going for you, is that spot VIX is so low that it may not drop any lower in a month and a half, and you always have a chance that it will be higher.

    Good luck

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