OPENING: SVXY LONG SHARES + "TERMINAL EVENT" PUT
I've done several posts on how and when to mechanically short volatility with VXX, UVXY, and VIX short call verticals and SVXY short put verticals with the focus being upon an entry when the VXST/VIX ratio is greater than 1.00 and (ideally) higher.* You can naturally wait for those events to occur and then do one of these "one-off" plays with a set expiry, looking to take advantage of inevitable contango drift.**
If you're the impatient sort and just want in, you can dollar cost average into a short VXX, short UVXY, or long SVXY position with short shares (in the case of VXX and UVXY) or long shares (in the case of SVXY, since it's an inverse). Because I'm not particularly fond of the various warts associated with a short shares position (on margin, heart attack on VIX spike), I'm opting for SVXY long shares here instead. Notably, SVXY long shares have their own warts: (a) they're pricey compared to VXX and UVXY; and (b) the underlying is subject to a "terminal event" -- an event where the VIX spike is so dramatic and profound that SVXY goes to zero. To "cover" that remote possibility, I've bought the cheapest, deepest out of the money long put there is -- the January 18th 2019 2.5 put (currently 439 DTE), which I'll leave in place as I accumulate SVXY long shares either on VXST/VIX ratio spikes or on a dollar cost averaging basis or both.
The first set of shares was bought at 106.25. As you can see by the chart, this wasn't an ideal entry (there was a VXST/VIX >1.00 event on 10/25 shortly before I bought these when SVXY dropped to 94), but the notion is to accumulate shares over time and let contango work its magic as opposed to fretting over "surgically ideal entries."
* -- I like a ratio of 1.15; 1.00 seems to produce too many occurrences.
** -- I will, in all likelihood, continue to do those "one-off" trades, although we've had very few of the >1.15 VXST/VIX ratio events this year to take advantage of.
If you're the impatient sort and just want in, you can dollar cost average into a short VXX, short UVXY, or long SVXY position with short shares (in the case of VXX and UVXY) or long shares (in the case of SVXY, since it's an inverse). Because I'm not particularly fond of the various warts associated with a short shares position (on margin, heart attack on VIX spike), I'm opting for SVXY long shares here instead. Notably, SVXY long shares have their own warts: (a) they're pricey compared to VXX and UVXY; and (b) the underlying is subject to a "terminal event" -- an event where the VIX spike is so dramatic and profound that SVXY goes to zero. To "cover" that remote possibility, I've bought the cheapest, deepest out of the money long put there is -- the January 18th 2019 2.5 put (currently 439 DTE), which I'll leave in place as I accumulate SVXY long shares either on VXST/VIX ratio spikes or on a dollar cost averaging basis or both.
The first set of shares was bought at 106.25. As you can see by the chart, this wasn't an ideal entry (there was a VXST/VIX >1.00 event on 10/25 shortly before I bought these when SVXY dropped to 94), but the notion is to accumulate shares over time and let contango work its magic as opposed to fretting over "surgically ideal entries."
* -- I like a ratio of 1.15; 1.00 seems to produce too many occurrences.
** -- I will, in all likelihood, continue to do those "one-off" trades, although we've had very few of the >1.15 VXST/VIX ratio events this year to take advantage of.
Trade active:
Adding long shares at 101.92 on a VXST/VIX print of >1.00. Cost basis of 104.09.
Trade active:
Adding long shares at 98.34 on a VXST/VIX print of >1.00. Cost basis of 102.17.
Trade active:
Just a small post-mortem/casual observation here after I added long shares this a.m.: the VXST/VIX ratio high today was actually only .99. Nevertheless, VIX was up substantially, no doubt in part due to expiration of the November contract/rollover + the sell-off we had. In a nutshell: watch for opportunities at rollover even if the VXST/VIX ratio isn't all that high ... .
Trade active:
SVXY at ATH's. If you're in "big," might want to peel some off here. Me, I'm riding the pony higher ... .
Trade active:
Adding shares at 112.25 on a VXST/VIX print of >1.00. Cost basis of 104.69.
Trade active:
The patient who waited for a >1.15 ratio print would have probably been rewarded today, assuming they could've gotten in around the lows.
Trade closed manually:
Covering the long shares here for 115.16 (10% ROC). Will consider reloading on dippage ... .
Comment:
Ugh. Although the small number of shares I bought would have lost most of their value here (it was far less than a one lot), the Jan 43 "terminal event long put" that I bought for .15 ($15) would now be worth 30.55 ($3,055), wayyyy more than offsetting the loss in share value ... .