VXX Strangle Spread Management
Started with monthly VXX Strangle 2 strikes wide. As volatility kicked in, sold off the profitable trade (a put) and then used the rest of the time to allow the bearish sentiment to kick in. the problem was a lot of times the option would be reach ITM (In-The-Money), but I would hedge by tightening up the strangle by adding another put once the direction changed. Recently volatility has slightly tamed compared to when Russia initially attacked Ukraine. Using support and resistance levels including price-action to confirm entry and exit points. Using MACD, Stochastics and RSI to guage the sentiment whether it's bearish or bullish.
Tightening the Strangle
Once the trend reverses, I purchase the other side of the Strangle once the Put-Call ratio is favorable and there are discounts in the options prices (Black-Scholes Model).
In February there was very high volatility which led to better chances for profitability.
Technical Analysis
Always wait for engulfing candles with a confirmation candle or two to spot a trend reversal.
Verify this reversal with resistance levels and breakouts in the RSI.
Stochastics can be used to view the short-term sentiment.
Update - 03-03-2022
Volatility has slowed down so much more patience is needed for the options to go in-the-money. Due to this uncertain investment and political climate, there could be chances for volatility to spike again. Either way, using a Strangle, we just want a strong move either to the upside or downside.
General trend for the past 3 days is a bearish trend with no breakouts yet. Tighten the Strangle once direction changes and options prices get cheap.
Lessons Learned
Sometimes you have to wait for the trade to move in your favor.
It's always better to purchase discounted options.
Tighten the strangle when it is cheaper to do so and the trend is moving in its favor.
Delta and Gamma combined help shape the rewards better than the Put-Call ratio only.
Wait for the technicals in the chart to trigger entry points.
Always get options with more time than you think you need. Sometimes it takes more time than predicted to minimize losses and be profitable in the long-run.
Tightening the Strangle
Once the trend reverses, I purchase the other side of the Strangle once the Put-Call ratio is favorable and there are discounts in the options prices (Black-Scholes Model).
In February there was very high volatility which led to better chances for profitability.
Technical Analysis
Always wait for engulfing candles with a confirmation candle or two to spot a trend reversal.
Verify this reversal with resistance levels and breakouts in the RSI.
Stochastics can be used to view the short-term sentiment.
Update - 03-03-2022
Volatility has slowed down so much more patience is needed for the options to go in-the-money. Due to this uncertain investment and political climate, there could be chances for volatility to spike again. Either way, using a Strangle, we just want a strong move either to the upside or downside.
General trend for the past 3 days is a bearish trend with no breakouts yet. Tighten the Strangle once direction changes and options prices get cheap.
Lessons Learned
Sometimes you have to wait for the trade to move in your favor.
It's always better to purchase discounted options.
Tighten the strangle when it is cheaper to do so and the trend is moving in its favor.
Delta and Gamma combined help shape the rewards better than the Put-Call ratio only.
Wait for the technicals in the chart to trigger entry points.
Always get options with more time than you think you need. Sometimes it takes more time than predicted to minimize losses and be profitable in the long-run.
Awaiting to see if VXX price continues in a downward trend.