Volatility Products Strategies & Trades (VIX, VXX, XIV etc.)

[Mikael 31]

i don't have a max loss, i usually set my buy back at 30-35% of credit received. if i don't get that filled i take it off before thursday 12pm for whatever it costs. thursday to friday have such a huge negative theta it's not worth keeping the trade on if the stock hasn't moved yet.
 

but the win rate on these trades has been so high, i think out of the last 20 or so trades i have lost money 4 or 5 times only. and the losses weren't big either. 

[samerh 6]

Awesome. Thanks for sharing. I think that is a better way than getting all my profits crushed by excessive commissions on daily trades.

[Mikael 31]

i have good experiences with aapl, goog, amzn, nflx, pcln. $10 wings are pretty decent for those stocks

[temper 1]

Hi Mikael, Sam, thank you for you inputs. Looks like I will need to look closer at that strategy after all.

[Mikael 31]

for AAPL most weeks you can get about $3-4 credit if you open monday. so your max loss is 10$ (wing width) - credit. but that only happens if you hold until expiration and apple closes right on the spot. but you should basically close the trade off before thursday 12pm or so (definitely before 2pm) for whatever it costs.

 

the reason for that is the Market makers have to deflate the IV to compensate for the overnight theta decay which is huge (if you read Jeff's Augen's book he explains this in detail), they tend to start killing the IV around thursday 12-2 (definitely by 2)

Edited September 9, 2013 by Mikael

[Mikael 31]

the 16 put calendar is worth 0.05 debit right now. anyone thinking of buying it or waiting for it turn into a credit

Edited September 11, 2013 by Mikael

[lc_match-aka-Bill 2]

Thanks for editing the decimal point. Had to check my medication.

I'll wait for better.  0.40 is my threshold for a third of a position.

Bought lots of VXX puts when it was 16-17, liquidating in stages as profits go above 8%.

[Mikael 31]

Haha sorry bill was a typo. Thought it might be good to pick some up leading up the 18th

[lc_match-aka-Bill 2]

Wow!  I didn't know you were looking at Sept/Oct....I was looking at Oct/Nov...it's nice to have some room to run.

[Mikael 31]

oh nvm didn't realize they were expiring so soon. 

[Mikael 31]

bought 1000 shares of uvxy at 33.05

[Mikael 31]

wow surprised at no taper at all. 

 

out at 30.5

 

 

bought 1000 shares of XIV @ 28.68

[lc_match-aka-Bill 2]

The Nov/Dec futures prices have flattened recently, and the Nov/Dec 17 call calendar is quoted 0.50-0.60.  We've played this before with the idea that the call calendars usually go for $1.00 or more.  Any opinions on whether this is a good deal?

[Kim 7,943]

I will take a look, might be not a bad idea.

[lc_match-aka-Bill 2]

Glad you understood I meant VIX.

[lc_match-aka-Bill 2]

VXX has spiked 9% in the last week.  I have initiated 1/3 a VXX Jan put position.

[Mikael 31]

did you guys see how the algos were trading vix futures past couple of days?

 

first they aggressively sell vix futures driving the vix down and then they aggressively buy S&P futures driving the S&P up until market close (they also short s&p stocks). then they unwind all the futures after market closes causing the market to fall the next day and reaping profits on the s&p futures and shorting s&p stocks.

 

wish i had enough capital to drive markets like that. what a easy way to make money lol

[samerh 6]

isn't that market manipulation?

[Mikael 31]

I duno, sure looks like it. but not sure if there's regulation against massively selling vix futures. 

 

overlay the /VX chart with the SPY and /ES charts and you'll see how they are doing it. notice spy runs all the way up until market close, then the /es futures sell off right after market closes. 

 

look at the tues and weds charts

[dbh21 62]

I don't really trade the VIX much, but starting to dig in more.

 

What do you guys think of this thesis:

 

According to VixCentral, Oct futures are 19.35 and vix cash is 20.35. This means assuming no movement in the VIX, the futures have to move up 1 pt within 1 week (they roll over next wed).

 

To take advantage of that move, I could buy a butterfly at the 21 strike. However, assuming the yahoo's in Washington don't get their shit together, the VIX will continue upwards, so I could get a 19/24/29 butterfly for 0.75.

 

Alternatively, I could buy a 17/19 call spread for a 1.10 debit or sell a 17/19 put spread for 0.95.

 

The risk is that the gov't strikes a deal within the next 7 days and the VIX plummets, or for the Butterfly, this VIX shoots up fast.

[Marco 223]

well that's the problem with all VIX based strategies right now - VIX can go one way or the other by quite a bit. VVIX (IV of VIX) is at 106 - not too far off all time highs since its exists which reflects that.

VIX Oct expires one day before the deadline for the debt ceiling - so this is a bet on whether they play their game of chicken til the last minute or not. Looking at where we are now - everybody spends a lot of time on blaming each other - going long Oct one way or another might be the right idea but its a pretty risky trade.

Edited October 8, 2013 by Marco

[PaulCao 51]

Hi, 
 
I'm thinking about doing a October 4 BWB: 
-1 Oct 4 VXX 17.5 call
+2 Oct 4 VXX 16 call
-1 Oct 4 VXX 15.5 call
 
The thesis: US congress will resolve the debit ceiling issue and not risk default by Oct 17 deadline; VXX will fall below 16.65, the breaking even point of this trade by Oct 25. This trade has better theta decay than a straight-out VXX put. 

 

The link to the P&L structure (for some reason I can't do attachements anymore):

http://imgur.com/8Cz4Tne

Best,
PC

[dbh21 62]

so this is a bet on whether they play their game of chicken til the last minute or not. Looking at where we are now - everybody spends a lot of time on blaming each other - going long Oct one way or another might be the right idea but its a pretty risky trade.

 

I've heard on NPR many times that many R congressmen are committed to taking this to the 11th hour (and 59th minute). All the other debt ceiling crisis's were resolved at the last minute, so there is precedence. And I probably would not hold to expiration.

 

Alternatively, I'm thinking about placing a SPY straddle with puts in the VIX to hedge the vega - basically a pure gamma trade. I'm assuming that when this is resolved, there will be a big move. But I'm not ready to place this quite yet. 

[Hannes Kury 7]

I am thinking about shorting the vxx. If I go 90 days to January with delta ~ 85-90 the puts are more expensive than the stock. If I just short the stock (vxx), instead of buying DITM puts, I will have no theta decay and delta 100. Am I missing something?

[Mikael 31]

i'm on betting on them resolving this debt ceiling thing, just like 2 years ago and vol coming down. i just don't see them defaulting on debt. that'll be millions of times worse than greece and basically self destruct the us economy. and no body wants to be blamed for self destructing the us economy. not congress or anyone in it. they are going to raise the debt ceiling and continue to borrow to pay their "bills", or wait, or just buy their own debt LMAO. aren't they doing 85 billion of that every months already

 

the next market correction/crash will be a doozy. can't wait  

[Mikael 31]

I am thinking about shorting the vxx. If I go 90 days to January with delta ~ 85-90 the puts are more expensive than the stock. If I just short the stock (vxx), instead of buying DITM puts, I will have no theta decay and delta 100. Am I missing something?

 

short the uvxy shares, it's double leveraged version of vxx basically. i'm so short that it's not even funny. then u can sell covered puts against your shares. 

[ykotowitz 20]

I am thinking about shorting the vxx. If I go 90 days to January with delta ~ 85-90 the puts are more expensive than the stock. If I just short the stock (vxx), instead of buying DITM puts, I will have no theta decay and delta 100. Am I missing something?

you can buy Xiv instead of shorting

[Mikael 31]

you can buy Xiv instead of shorting

 

one disadvantage of that is you can't short covered puts or calls because xiv has no options. 

 

if you short vxx shares you can sell covered puts, same as uvxy which is just 2x leveraged of vxx. 

[PaulCao 51]

Hi, 

 

Probably some people already know this, but actually VIX futures term structure is in backwardation 'till December - meaning instead of the usual VXX contango/decay, there is a VXX gain every day that VXX fund sells the more expensive October future and purchase more relatives shares of the cheaper November future. 

 

http://vixcentral.com/

 

That gain is 2x on UXVY and inverse on XIV. 

 

I'm still in my 17.5/16/15.5 VXX call BWB but expect VXX to breach the max loss pt. on my structure at 17.5 before it hopefully goes back down again, 

 

Best,

PC

[Mikael 31]

paul is right, if you short now uvxy will go up everyday as long as it's in backwardation. but history suggest backwardation don't last very long and eventually uvxy will fall, if you short a bit of shares everyday to cost average up you'll reap the profits when they resolve this shutdown/debt ceiling thing.

 

of course the risk is there is a market meltdown and vix spikes up to 50 and stays there for months. then you'll suffer a tremendous amount of paper loss, so make sure you don't over allocate if you do this trade.

[PaulCao 51]

Hi, 

 

VIX is now in its usual contango (but flatter than usual) shape now. Congrats to all who have shorted VIX, 

 

Best,

PC

[Mikael 31]

uvxy is down 6.5 dollars so if you shorted yesterday you should just take profits now, this thing isn't really resolved yet and it could spike back up so might as well take a 6 point profit off the tables now.

[Mikael 31]

I want to talk about a trade i have been doing on the uvxy and i think not enough people are taking advantage of this.

 

so let's assume the uvxy is trading at 35.5

 

so what i would do is short uvxy, say 100 shares

 

then i would sell the ATM put, so the 35.5 put going out next week.

now this put has 2.915 of extrinsic value in it according to ToS paper trading.

 

 

so my  net position is 

-100 shares of uvxy @ 35.5

-1 contract of uvxy oct wk3 35.5 put

 

if vol comes down and uvxy drops, say to 30 by next week, you would have made quite a bit of extrinsic. i see the 30 put right now to have about 50 cents of extrinsic value in it. you don't have to care about the price because your fully covered through your shares. so with time decay and the put going ditm, the time value would have drained out of the put and you get to keep most of the extrinsic. so you would make about 2 dollars / contract. so that'll be a net profit of $200 on the trade if you close the stock and option side together.

 

 

if vol goes up and uvxy spikes, then it's not an ideal position. let's say it spikes back up to 45.5. well now your down 10$/share, so -1000$ on the stock sidebut you would get to keep 290$ of the contract in full since it's now far otm and it'll expire worthless. so what you can do the following week is sell again the 35.5 and collect the extrinsic again to bring down your paper loss on the shares. the idea is eventually uvxy will come back down and you can close your total position for a net profit. since you collected extrinsic on multiple weeks. 

 

what you want to keep mindful of is don't over allocate by shorting too many shares and risk getting margin called if uvxy spikes up significantly.

 

you can also do the other side if you believe uvxy will rise, so long shares and sell covered puts. the trade mechanics are the same.

Edited October 10, 2013 by Mikael

[Marau 4]

 

I want to talk about a trade i have been doing on the uvxy and i think not enough people are taking advantage of this.

 

so let's assume the uvxy is trading at 35.5

 

so what i would do is short uvxy, say 100 shares

 

then i would sell the ATM put, so the 35.5 put going out next week.

now this put has 2.915 of extrinsic value in it according to ToS paper trading.

 

 

so my  net position is 

-100 shares of uvxy @ 35.5

-1 contract of uvxy oct wk3 35.5 put

 

if vol comes down and uvxy drops, say to 30 by next week, you would have made quite a bit of extrinsic. i see the 30 put right now to have about 50 cents of extrinsic value in it. you don't have to care about the price because your fully covered through your shares. so with time decay and the put going ditm, the time value would have drained out of the put and you get to keep most of the extrinsic. so you would make about 2 dollars / contract. so that'll be a net profit of $200 on the trade if you close the stock and option side together.

 

 

if vol goes up and uvxy spikes, then it's not an ideal position. let's say it spikes back up to 45.5. well now your down 10$/share, so -1000$ on the stock sidebut you would get to keep 290$ of the contract in full since it's now far otm and it'll expire worthless. so what you can do the following week is sell again the 35.5 and collect the extrinsic again to bring down your paper loss on the shares. the idea is eventually uvxy will come back down and you can close your total position for a net profit. since you collected extrinsic on multiple weeks. 

 

what you want to keep mindful of is don't over allocate by shorting too many shares and risk getting margin called if uvxy spikes up significantly.

 

you can also do the other side if you believe uvxy will rise, so long shares and sell covered puts. the trade mechanics are the same.

 

Don`t you think it is safer to do it with DITM puts?

[Mikael 31]

Don`t you think it is safer to do it with DITM puts?

 

ok here's the thing with doing it with puts.

 

so let's say you buy a DITM put instead of shares going out 90 days. what if the uvxy spikes up and stays high for the next 3 months. it's not likely but certainly possible. plus even if you buy the 60 ditm put right now, it'll cost you $5 in extrinsic. so if uvxy spikes up and doesn't go down you'll lose that entire $5. of course selling extrinsic every week will offset that but i prefer to do it with shares for that reason. 

 

basically if you short shares it's less leverage but you have no time restriction. you can hold it for a long time without worrying about time decay etc and you can always sell the weekly options against it which decays very fast.

[Marau 4]

At least, with puts, you would only loose the value of your investment, unlike the risk of shortting an animal like uvxy...

[Mikael 31]

5/17/13 vix @ 12.79 / uvxy @ 56.2 

6/24/13 vix @ 21.91 / uvxy @ 89.84

 

vix +71.8% / uvxy + 59.8%

 

 

a month later after vix came back down to 13,  uvxy came back down to 41.35.

 

point is, vol is mean reverting. it'll never stay high forever and vix futures won't be in backwardation forever. if the trade goes against you, ie uvxy spikes up, if you can keep the trade for the long term it'll eventually become a winner.

 

uvxy cannot spike up to infinity nor can the vix. if given a choice to bet down or up on the uvxy over the long run, i'll always bet down on uvxy.

 

 

just to clarify i'm not suggesting you short the uvxy when the vix was at 12.79, i'm saying you short it when it's relatively high. like yesterday when the vix went over 20. you could have shorted the shares and sold atm or 1-3 strike otm puts then. today you would have collected 2-4 dollars in intrinsic and a couple of cents in extrinsic and closed everything off for a net profit. 

Edited October 10, 2013 by Mikael

[PaulCao 51]

Hi, 

 

Looks like I spoke too soon when VXX only dropped 4% this morning, it's down 9.84% on the day, UVXY is down 19.76% for the day, congrats again to all those who shorted, esp. on leverage, 

 

Best,

PC

[lc_match-aka-Bill 2]

I dunno.  I bought puts on the first 10% vxx spike last week, added full positions the next 3 days.  Yesterday everything was down big  time.  After today all positions are up 8% or more.  It's lazy and brainless and commission-efficient.  I like that.  I'll probably close them tomorrow morning, travelling today.  Another guy I follow is 'lazy-trader'.  It works.

 

I know, VIX could stay high for 3 months.  Always some risk, and I'll take that  risk.  Better than a RUT calendar with RVX at 25.

[Marco 223]

had some 21 VXX Oct puts that I bought 2 months ago and after being up 20 odd % I was in the red with the latest spike. I follow a 'system' that would stop me out when the 10 day SMA of VXV/VIX would go above 1. The ratio was as high as 1.04 over the last few days however the 10d SMA stayed just below 1 so I kept adding to the position (buying DEC 21 Puts). 

After yesterdays massive VIX drop I felt like I need to take some money off the table as while I think there is still juice in the trade there is still a possibility they screw it up in D.C. or kick the can down only 6 weeks in which case I think VIX might go higher again  ... and I grew the position to more than 3 times what I had initially so I closed my Oct Puts (expire soon anyway) up 6% again and kept the Dec Puts (up 11% now) and moved some money into ZIV so still exposed to the short VIX trade quite a bit but cut position by about half and reduced leverage by moving some money from front month options in VXX to just plain ZIV

If VIX/VXX drops much further after some sort of resolution I might either reduce my Dec 21 Put position in VXX or sell some lower strike puts against it to reduce theta and take some more money off the table to add again at the next spike.

 

Wouldn't call it 'lazy and brainless' to trade VIX/VXX but I find it easier sometimes to trade the mean reversion there (with a stop) than the direction on the SPY or even a stock.

[Hany 1]

Not all the volatility products have options.  Does anyone know if this would change soon?

Edited October 13, 2013 by Hany

[lc_match-aka-Bill 2]

'Lazy and brainless' simply because the strategies of the 16 put spread for a 0.50 credit or more in low volatility, the 17 call spread  for 0.50 or less in flat/backwardation (for the VIX) and buying 3-months out puts on a 10% VXX spike simply require no anlaysis, adjustments, nor much of a worry.  For myself, I end up away from the keyboard at key times and always seem to get creamed because of that.  These trades are robust and predictable, as much as anything I've seen in options.  If anyone has a more robust trade I'm all ears.

[Hany 1]

'Lazy and brainless' simply because the strategies of the 16 put spread for a 0.50 credit or more in low volatility, the 17 call spread  for 0.50 or less in flat/backwardation (for the VIX) and buying 3-months out puts on a 10% VXX spike simply require no anlaysis, adjustments, nor much of a worry.  For myself, I end up away from the keyboard at key times and always seem to get creamed because of that.  These trades are robust and predictable, as much as anything I've seen in options.  If anyone has a more robust trade I'm all ears.

Bill,

 

Strategies work until they don't.  How long have you been doing this?

[lc_match-aka-Bill 2]

Yeah, I'm waiting for 2008 again. I know that Hans. Thank you.

[lc_match-aka-Bill 2]

Or put it this way, nobody knows more about failure than I do.

[samerh 6]

Wondering what people think of this trade idea:

 

 

A 1-week short butterfly on VXX. with the wings spaced $4. So you are SHORT the 11 call, LONG 2x 15 call and SHORT the 19 call.

You would get a credit of $2.9, max loss would be $4 (width of the wings) less your $2.9 credit = $1.1

VXX median move as measured over the last 2 years for Mon through Wed is approximately $1.2

60% of the time it moves >$1 mon-wed

The breakeven for the trade by Wednesday (looking at the white line on TOS analyzer) is $0.8 move, and VXX moves $0.8 Mon through Wednesday 70% of the time.

 

With debt ceiling talks etc we might expect much bigger moves this week, and the VIX is effectively moving in response to debt negotiation news.

If the VXX moves, say, $1 between now and Wednesday, you make a $0.13 profit (on risk of $1.1 = 10%), if it moves $2 you make a $0.75 profit (68%).

 

Any views, or is my logic faulty?

Edited October 14, 2013 by samerh

[Hany 1]

Hey guys,

 

Has anyone seen the following article:

http://www.minyanville.com/business-news/markets/articles/Stock-Market-Is-Trending-Perfectly-With/10/21/2013/id/52323?camp=syndication&medium=portals&from=yahoo&refresh=1

 

Does anyone know of the "volatility of volatility"?  Also, does anyone know anything about the first chart in the article?

[lc_match-aka-Bill 2]

Heh!  Reverse split in VXX coming again.

 

 

http://eon.businesswire.com/news/eon/20131025005924/en/iPath%C2%AE/S%26P-500/VIX

[lc_match-aka-Bill 2]

Adios, but try this:

 

http://finance.yahoo.com/news/reversal-stock-market-volatility-ahead-192315794.html

[Kim 7,943]

Adios, but try this:

 

http://finance.yahoo.com/news/reversal-stock-market-volatility-ahead-192315794.html

He is basing his opinion on historical patterns, and I think most of the time those patterns work pretty well. With VIX, the trick is to enter when it's low and structure the trade in a way that even if the spike takes some time, you won't lose too much. This is the mistake we made with the VIX fly (entering when VIX was 16-17), but our last VIX trade is back to even now. Couple more volatile days - and we will be out for a nice gain.