SVXY -- SHORT VOLATILITY PLAY
If you know anything about volatility products, you'll know that -- unlike VXX and UVXY, SVXY increases in value as volatility declines (it's an inverse) and suffers from "inverse contango" which ultimately means that, over time, SVXY's value will go to infinity in the absence of backwardation, splits (it's undergone two since inception -- a 2/1 in 2012 and a 2/1 in 2014), or a massive increase in volatility, which could arguably reduce its value to zero in fairly short order.
For purposes of this play, however, you need not fret about the long term effects of "inverse contango" and "backwardation" -- all you need to really know is that as volatility declines, SVXY rises.
At this point in time, we're at a fairly significant low in SVXY, and I'm betting on volatility contracting somewhat over the next 40 days or so such that SVXY finishes clear of my 35 short put strike at expiration or at a price that allows me to take the trade off for 50% max profit prior at some point between now and then:
Feb 26th 30/35 short put vertical
Probability of Profit %: 55%
Max Profit: $201/contract
Buying Power Effect: $299/contract
Break Even: $32.99
Naturally, if volatility does not contract such that price moves above my short strike, I'll roll the setup for duration and credit.
For purposes of this play, however, you need not fret about the long term effects of "inverse contango" and "backwardation" -- all you need to really know is that as volatility declines, SVXY rises.
At this point in time, we're at a fairly significant low in SVXY, and I'm betting on volatility contracting somewhat over the next 40 days or so such that SVXY finishes clear of my 35 short put strike at expiration or at a price that allows me to take the trade off for 50% max profit prior at some point between now and then:
Feb 26th 30/35 short put vertical
Probability of Profit %: 55%
Max Profit: $201/contract
Buying Power Effect: $299/contract
Break Even: $32.99
Naturally, if volatility does not contract such that price moves above my short strike, I'll roll the setup for duration and credit.
Comment:
I chased price a bit here, finally getting filled for a 1.69 credit. I'll look to take it off at 50% profit.
Comment:
After last night's price action, I decided to fade any increase in volatility and added another position in SVXY -- a March 18th 25/30 short put credit spread that I got filled for 1.63.
Comment:
Covered the March 18th 25/30 for 50% max profit.
Comment:
Covered the Feb 26th 30/35 at 50% max profit. If we get another dip to 36-ish, I'll consider throwing a couple more of these on.