Can you please enlighten us all of why VXX would go up by 50%????
I can see VXX hitting in 30 to mid 30's if we can a small correction, but a jump of 50% would have to be because of a 10% correction or an international crisis that DIRECTLY affects us (not the Ukraine/ GAZA crisis that is going on now).
The Net asset Value of UVXY is $25.92.
So after hours just brought it back to where it should be.
We will see you back one day.
The two key questions are:
1. When will that be?
2. Will the long term bulls (myself included) be able to close out our positions with sizable gains before giving a lot of these gains back?
Have a great weekend,
I agree with your comments about hedging (but close of business was too late, better to wait for this to recover and then hedge).
I have been playing this a little more conservatively by selling weekly covered calls against my position or calendar spread trades against my longer term call options (selling weekly calls and rolling them each week if they exceed the strike price).
While both techniques will not help me from a black swan event, it allows me to capture some premium each week and be able to ride the fluctuations in SVXY.
If we do get a black swan event, this extra cash will allow me to buy additional calls at that time (and be able to recover at a much faster pace).
If you see 8% negative yield roll and two weeks for future expiration, absent a major market sell-off, you will have a continuous drop in UVXY.
I would put the chance at less than 5% and dropping each day.
Look at it like this:
100% gain gets you back to $53
Wait 1 month and if UVXY is down to $23 or so, the 100% gain gets you to $46
Thanks for your reply and your comment on August expiration.
In making monthly option trades, I always want the VIX futures to expire before option expiration. This way I am getting the full effect of negative yield roll and contango.
Based on all my indicators, I am a firm believer that SVXY should be at least $90 by July option expiration.
Based on this, I did a calendar spread yesterday.
I bought the July 19th SVXY strike price of $85 and sold this weeks call at $88. Net debit of $4.90
I figured that if SVXY reaches $88 today (which I doubt), the $85 calls would be worth about $6.50 and I would sell both legs for about a 30% gain (over a 2 day period- great for me).
If SVXY does not reach $88, then on Monday I would probable sell the weekly calls at a strike price of $90. This would reduce my cost of the trade to about $4 per contract. If it reaches $90 by end of next week, then the $85 calls would probably be worth at least $6 and I would make at least 50% on the net at risk ($4)
If it doesn't reach $90, then the following Monday, I would sell weekly calls again (price to be determined) and see where we end up.
If SVXY exceeds my sales price on the calls I am selling, I can always roll them over to the next week (eithera t the same strike price, or a higher price- based on my feeling of how much more upside their is, versus collecting a premium to protect my downside)
I am trying to both reduce my cost basis as well as participate in some movement up in the SVXY stock price.
What do you think?
I agree with you.
The key is to try to ride the good times and avoid the black swan event.
Easier said then done
The key question is when will we see a correction??? People have been calling for a correction for the last 3 years and we just go higher and higher. Those investors who had the nerve to just buy and hold this ETF were up over 100% in 2012, another 100% in 2013 and 29.21% now.
With the FED easing still going on, the anticipation of low interest rates for a longer time, no concern about inflation, ECB now STARTING their easing and the Bank of Japan also easing, it looks to me that we may get to 15 by year end and have another 100% return this year.
Time will tell.
I am in your corner about the VIX and the futures.
I am hoping that SVXY stays about constant so my covered calls can make some decent money for a few weeks.
Currently, I like how July futures is setting up, so unless we get a market correction, we can have a very nice July.
I am glad that those trades worked out for you, BUT they can be very dangerous.
Looking over my trading account from 1/1/11 to now, I see an increase in it of about 6.25X. This increase occurred while I was pretty conservative on some of my option bets. I have only been doing volatility trades for about 4 years, with 2010 and 2011 only partially part of my account (other trades were individual stocks that did not turn out as well as the volatility trades). Starting in late 2011, I was trading 100% in volatility (when I was in the market and very often sitting in cash when I was looking for a better opportunity).
To compare your returns to mine from the beginning of 2011 to December 31, 2013 I was up about 25% more than what you posted you earned.
In this year, you mentioned that you had a 30% loss. I am up a few percent this year. Because of your large loss this year, my cumulative gain from 1/1/11 to now is about doubled your cumulative gain.
Good luck in the future and keep in touch,
Those are very good returns.
For 2012 & 2013, did you do these betting volatility would rise (since you now say you are with the bulls), or were you betting that volatility would drop (and thus got the benefit of the rising market).
2014 has been hard on many of us, but it looked like the skies got clearer a few months ago (for the bulls)
To get a look at the possible returns with an uprising market, look at SVXY historical prices from 1/1/12-12/31/12 and from 1/1/13-12/31/13.
Both years were in excess of 100%
This is what I would call a home run.
These returns happened when market was up. It is a different story when market is down (look at what happened to XIV when it was first established).
In addition, there were studies published that in 2008-2009, a buy and hold may have lost about 90% of SVXY until it was able to capture its highs.
Key is to ride the good time (you can multiply the returns using options) and avoid the bad times (if you can)
There is no free lunch and you must be very careful with these products.
While history helps, I always look at what is coming up in the calendar (political and economic events), compare that to the overall economy and review the VIX future curve.
I am like you with not needing a home-run each month, but looking for an outsize gain each year ( I do not need an annual home run- BUT- it would be nice). I also have the same time horizon that you do as far as retirement, but hoping to knock a few years off of this, if I can continuously get these outsize returns mixed in within a few home-runs.
I agree with your first part of your message (I just sold out my SVXY calls and UVXY puts that expire June 21st). I agree with you that I question how much more it can go up in a short term basis.
As far as the bear spreads (or the puts), I am not sure about that. I wouldn't mind doing a small trade on it (about 25% of your normal spread trade), but i would be hesitant on doing anything else.
Overall market is strong, people may be buying back into it and this could preclude the VIX futures from increasing that much.
PS- as it stands now, yes I like how July is setting up.