Here's the wrinkled brain vs the smooth brain approach. For those with a WSB Reddit notion.
No one knows when SPY will break or when people have a Martingale Anti-MArtingale systematic buying and selling SPY (it's like the roulette black or red idea - it's gone up so many days in a row so it must correct. No no its gone up so many days in a row so it must go further up). A very bad way to try and make real money. Not my problem.
I just look at the NAV and calculate how much it can decline. The NAV is $9.99 this AM. Will it be less than $9 in 45 days? Unlikely but could be. But it does not matter because barring a spike and a flood of capital driving up the price of the common this not be sub $7.71. This is the value of the cash I received subtracted from the $9 strike price. If the common is above $9 I keep it all in less than 45 days. If there is a spike in UVXY and a decline in SPY I buy these back for up to a 50% profit. More if it is one of the historic black swan type drops - and they do infrequently happen.
History that I've posted elsewhere:
Febrary 2018 all world markets and I mean all world markets closed down. All futures were down for all markets the next morning. All commodities were down including gold. The next morning premarket UVXY sprinted to $18 in premarket trading. At the open in 4 hours advanced to $38 on the SPY drop with the volatility contracts in the UVXY portfolio climbing in posted value. The shorts were squeezed picking up those nickles in front of steamrollers as the adage goes.
March 2020 SPY dropped twice its average true range. XLY etc all dropped. Then leveled off for a week. Then the major Covid drop. In that week UVXY eroding in NAV and then the spike was from $12 to $130. Again lots of time to get long at a twice average true range with additional capital added on the bounces. I level it off at 10% of capital turtle trading style. Van Tharp influenced position sizing at work.
The 30 delta short term calls are a lottery ticket as almost of the time these expire worthless without a 3% SPY drop. This is a binary event. Absent the spike this is a downward erosion of value. Think of it like car insurance. Every day you don't have an accident the company keeps the premium.
I am the company if a person believes UVXY will decline I accept the put premium secured with my cash. Cautiouly sold.
Here is the good Part. If we get SPY eroding at 2xATR then I get to buy these back for a 40% to 50% profit.
I get paid to wait with the erosion of the UVXY contract and the possibility of a spike by selling the puts that are on a strike price 10% or 20% below the NAV. Simple formula for UVXY success that stands a back test review.
Yes I would love a UVXY spike in the next 45 days. If not I still make money on the drop thanks to the Martingale and anti-Martingale players.
No one knows when SPY will break or when people have a Martingale Anti-MArtingale systematic buying and selling SPY (it's like the roulette black or red idea - it's gone up so many days in a row so it must correct. No no its gone up so many days in a row so it must go further up). A very bad way to try and make real money. Not my problem.
I just look at the NAV and calculate how much it can decline. The NAV is $9.99 this AM. Will it be less than $9 in 45 days? Unlikely but could be. But it does not matter because barring a spike and a flood of capital driving up the price of the common this not be sub $7.71. This is the value of the cash I received subtracted from the $9 strike price. If the common is above $9 I keep it all in less than 45 days. If there is a spike in UVXY and a decline in SPY I buy these back for up to a 50% profit. More if it is one of the historic black swan type drops - and they do infrequently happen.
History that I've posted elsewhere:
Febrary 2018 all world markets and I mean all world markets closed down. All futures were down for all markets the next morning. All commodities were down including gold. The next morning premarket UVXY sprinted to $18 in premarket trading. At the open in 4 hours advanced to $38 on the SPY drop with the volatility contracts in the UVXY portfolio climbing in posted value. The shorts were squeezed picking up those nickles in front of steamrollers as the adage goes.
March 2020 SPY dropped twice its average true range. XLY etc all dropped. Then leveled off for a week. Then the major Covid drop. In that week UVXY eroding in NAV and then the spike was from $12 to $130. Again lots of time to get long at a twice average true range with additional capital added on the bounces. I level it off at 10% of capital turtle trading style. Van Tharp influenced position sizing at work.
The 30 delta short term calls are a lottery ticket as almost of the time these expire worthless without a 3% SPY drop. This is a binary event. Absent the spike this is a downward erosion of value. Think of it like car insurance. Every day you don't have an accident the company keeps the premium.
I am the company if a person believes UVXY will decline I accept the put premium secured with my cash. Cautiouly sold.
Here is the good Part. If we get SPY eroding at 2xATR then I get to buy these back for a 40% to 50% profit.
I get paid to wait with the erosion of the UVXY contract and the possibility of a spike by selling the puts that are on a strike price 10% or 20% below the NAV. Simple formula for UVXY success that stands a back test review.
Yes I would love a UVXY spike in the next 45 days. If not I still make money on the drop thanks to the Martingale and anti-Martingale players.
Good trading
All the best.