Guest Peticolas Report post Posted December 15, 2013 Just a followup on some earlier discussions. If you like XIV, you might consider ZIV instead. Although returns are less, risk-adjusted returns with metrics like Sharpe ratio are much much better. Share this post Link to post Share on other sites
terryelrod 0 Report post Posted January 25, 2014 I'm a new member of Steady Options and hope this is not an inappropriate place to discuss this issue, but I entered a trade yesterday with VIX options. I know that many here are very knowledgable about these trades and I'm hoping for some feedback. I am following the Steady Options trades but also have some long call positions. As I watched the SPY as it was dropping 40 points yesterday I started looking for a hedge against further erosion of my long call positions. I didn't want to exit them because I am still expecting a rebound with them. But I wanted some insurance. With volatility higher I wanted to sell a call spread on a stock, so if the market continues to drop I would profit and help with a loss on my long calls. It was difficult to find a spread that would pay much of a credit. I ended up looking at the VIX. Selling a $16 Feb put and buying a $15 Feb put provided a credit of $70 per option contract. So max loss if the market goes up and VIX goes down is $30 per contract (but of course then my long call positions will profit). If the market goes down and VIX up I can keep at least some of the $70 credit per option and help with the loss on my long call positions. IV for the Feb $16 put is around 140% and IV for the Feb $15 put is about 125%. Any advice or feedback would be greatly appriciated. I think what I did will help me, but I may be missing something. Share this post Link to post Share on other sites
Kim 7,943 Report post Posted January 25, 2014 I think this is a reasonable trade, with reasonable risk/reward. Even if VIX goes down, the spread will be probably worth around .85-.90 so you can limit the loss to $15-20 per contract. Of course percentage wise, it is still 50-80% loss on margin, but since this is a hedge and not standalone trade, it's okay if you use correct position sizing. However, I'm not sure I would select this specific structure as a hedge because your upside is limited to the premium of $70 per spread. If the market really tanks, the gains from the VIX are not likely to offset the losses from the long positions. One alternative is to do a risk reversal: you sell the put spread and use the proceeds to buy a call. For example: you can do your trade for 0.70 credit and use the proceeds to buy a 20 or 21 call, for a very small debit or even money. If VIX stays above 16 by February expiration, you lose only the debit (or nothing if the trade is done for even money). If the market really tanks and VIX goes to 25-30, your profits from the calls will be really nice. Of course the downside is that your breakeven goes from 15.30 in your case to 16 in the risk reversal, and if the market recovers, the calls will start losing value fast. So you have to be careful not to do too many contracts. As a side note, our Anchor strategy is implementing a very effective hedge strategy using combination of long/short puts, so you are hedged all the time at very low cost (in some cases the hedge might actually be free). Share this post Link to post Share on other sites
terryelrod 0 Report post Posted January 25, 2014 Thanks very much for your response, Kim. I will think about using the credit for long calls. Share this post Link to post Share on other sites
cwelsh 1,549 Report post Posted January 31, 2014 Its begining to look like a good time to purchase those DITM VXX puts -- one of my all time favorite strategies. On the next big uptick (hopefully early next week), I'll probably be buying some in my open strategy account. Share this post Link to post Share on other sites
Marco 223 Report post Posted January 31, 2014 you are looking for an uptick in VIX/VXX or an uptick in the market to buy these puts? Share this post Link to post Share on other sites
Guest Peticolas Report post Posted February 1, 2014 Its begining to look like a good time to purchase those DITM VXX puts -- one of my all time favorite strategies. On the next big uptick (hopefully early next week), I'll probably be buying some in my open strategy account. DITM = about 90 delta? Share this post Link to post Share on other sites
cwelsh 1,549 Report post Posted March 6, 2014 DITM = about 90 delta? That's ideal, sometimes I squeak down to .85 or so, depending on the current contango on the options and volatility and my opinions on the market Share this post Link to post Share on other sites
