Here's a bit better way to do this. Yesterday you could have sold the $9 strike March put for $1.65. Today it is $1.50 bid, $1.65 ask at the close. Theta (time decay) is 0.0175. roughly translated this can lose about $1 total in the 63 days to expirtation.
This mean UVXY will logically/likely but not assuredly be above $9 at expiration and the put will expire worthless. Any bump up that is less than twice the average 20 day trading range where I gain $20 per contract I buy these back to resell again on the next drop.
Ok for a small poor man's gain but real money is on the Volmageddon spike $18 to $38 which occurred in February 2018. Lots of ink on that being a short squeeze. However, the futures for all world markets were down, all commodities were down including gold and all world markets had closed down the day before. This was a perfect storm. May people have ridden the puts downward forever by taking the opposite side of this trade. I woke up and was there to buy calls at the open. Watch for this event when it occurs.
March 2020 the Covid SPY drop occurred oveer a two week period. SPY traded down twice average true range giving a sell signal (or buy UVXY signal). SPY leveled off for a week then dropped off the cliff. UVXY common went $12 to $130. So where is the next black swan? OF course it's a swan becasue we the average Joes don't see it coming. the lunatics all know what we don't and occasionally they are right. The point here is that if this is a true rising volmageddon or black swan there will be time.
when was there not time? the killing of the Iranian General. then the puts were golden as volatility rose sharply and they could be sold. But the 2xATR buying opportunity fizzled and was unprofitalbe. Not eveery entry is a winner. this time it never became the covid crisis or Volmageddon. the Iranians shot a few scuds into the sand at a base and declared victory and said they would take care of it later.
I've traded these precisely this way twice in the last now almost 7 weeks. So there will be time to get long the calls when I sell the 45 day range puts about $1.50 to $2.00 below the current price of the stock. Note here that collecting $1.65 UVXY must be below $7.35 in 63 days or I can sell the common for a gain. As usual I expect a bump before that occurs. For now I am watching time decay erode the premium paid to me by the buyers of the opposite side of the contract.
The only caveat here is to never sell a leap put. the rolling over of the $1 billion portfolio in short term month forward volatility instruments plus the time decay of those instruments is costly. Look at a 10 yerar chart and you will wonder why you have not simply been short these instruments and endured the occasional bounce. Give me a direction and I will game it. That's all I ask. I know it will erode the TVM. I am looking to sharply trade the bounce.
All of this is fun but the reall money is made in Volmageddon or Covid March. then get long.
dchills_WHALE
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@Spotshooter1983, Thanks for the Education! Very insightful. Cheers.
Ozayevable
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@Spotshooter1983, thank you for taking your time to put these together.
Spotshooter1983
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@Ozayevable,
Certainly . You are welcome. As the old adage goes - experience is what you get when you do not get paid. When I first invested in UVXY I sold the leap put that was roughly 700 days out. I received what looked like a fat premium. Then when Proshares reversed the stock ( a routine that explains the 5 year chart) there was no event that spiked over the strike I chose and the venture against the time decay cost me $9,000. I realized I had gone way to far out in the future and the premium was less than the risk. It always is with the leaps. I learned an expensive lesson.
This morning world markets generally were down or closed down in other countries. Commodity prices were mixed and all world futures premarket were down. UVXY rose 5% premarket and my cash secured put credit declined to $1.40 bid and $1.50 asked. I could buy these back for $1.50 and net $15 per contract. I generaly look for at least $20 net per contract as time decay in the last 56 days erodes significantly. I will exit at 21 days to go to expiration of the March contract with a profit hopefully that exceeds the $15 I could net today. I f UVXY is under $9 I will exit with a profit still becuase I collected $1.65 to insure that I would take UVXY at $9. It is a theta race vs the cost to roll the contract. Time decay erodes more quicly as the contract ends.
Had SPY tumbled and volatility risen this morning to the point where the common traded at twice the 20 day average true range, I would buy back my cash secured puts and bought the calls that are 45 days out. This is the formula that I adhere to when handling this very dangerous position. This has its own set of dangerous traps. If this is a false rise and it just happened to trade over twice average true range, then drop back, I have to have a trailing stop loss - always. Always because UVXY can reverse as quickly as it rose destroying call value. False rises do occur and volmageddon or March 2020 don't always happen. These should be small losses that will occur to catch the large disaster - not for everyone but the traders life line is risk management.
So If there is a catastrohe that riles markets I make money. Ghoulish I'm aware but profitable. I do this with 2% of my capital and add 2% at every twice average true range bump in the common up to a maximum of 10% invested. As the stock rises that is 2% of the new larger capital pool. This has worked out nicely with UVXY over time. I learned never to buy the common and wait while it erodes and absolutely never to sell a put that is farther out than 90 days. The leap premium erodes too slowly and the cost to roll the volatility contracts plus the management fee combined with the reverse splits make this a losing strategy.
When UVXY went $12 to $130 that was when real money was made.
Take care and thanks for the kind words. Because we agree we have confirmation bias. We could always both be wrong in the future. All the best.
Spotshooter1983
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@Spotshooter1983,
If none of that is clear, just message me privately. All the best.
This mean UVXY will logically/likely but not assuredly be above $9 at expiration and the put will expire worthless. Any bump up that is less than twice the average 20 day trading range where I gain $20 per contract I buy these back to resell again on the next drop.
Ok for a small poor man's gain but real money is on the Volmageddon spike $18 to $38 which occurred in February 2018. Lots of ink on that being a short squeeze. However, the futures for all world markets were down, all commodities were down including gold and all world markets had closed down the day before. This was a perfect storm. May people have ridden the puts downward forever by taking the opposite side of this trade. I woke up and was there to buy calls at the open. Watch for this event when it occurs.
March 2020 the Covid SPY drop occurred oveer a two week period. SPY traded down twice average true range giving a sell signal (or buy UVXY signal). SPY leveled off for a week then dropped off the cliff. UVXY common went $12 to $130. So where is the next black swan? OF course it's a swan becasue we the average Joes don't see it coming. the lunatics all know what we don't and occasionally they are right. The point here is that if this is a true rising volmageddon or black swan there will be time.
when was there not time? the killing of the Iranian General. then the puts were golden as volatility rose sharply and they could be sold. But the 2xATR buying opportunity fizzled and was unprofitalbe. Not eveery entry is a winner. this time it never became the covid crisis or Volmageddon. the Iranians shot a few scuds into the sand at a base and declared victory and said they would take care of it later.
I've traded these precisely this way twice in the last now almost 7 weeks. So there will be time to get long the calls when I sell the 45 day range puts about $1.50 to $2.00 below the current price of the stock. Note here that collecting $1.65 UVXY must be below $7.35 in 63 days or I can sell the common for a gain. As usual I expect a bump before that occurs. For now I am watching time decay erode the premium paid to me by the buyers of the opposite side of the contract.
The only caveat here is to never sell a leap put. the rolling over of the $1 billion portfolio in short term month forward volatility instruments plus the time decay of those instruments is costly. Look at a 10 yerar chart and you will wonder why you have not simply been short these instruments and endured the occasional bounce. Give me a direction and I will game it. That's all I ask. I know it will erode the TVM. I am looking to sharply trade the bounce.
All of this is fun but the reall money is made in Volmageddon or Covid March. then get long.