JLJ002500
Short

VXX - Bear Credit Call Spread

AMEX:VXX   IPATH S&P 500 VIX SHORT TERM FUTURES TM ETN
This is purely my trading journal, not investment advice. Especially with the screwed up and questionable nature of these volatility ETF & ETN             created products, risk is even higher. Trading options of one of these products is buying/selling derivatives of an underlying product that is based on futures of a derivative.

I closed my previous call spread. Took the money and ran not risking something crazy happening before expiration. At the same time I opened another call spread expiring 2/16. I lesson the spread, which reduced the income I receive, but also lesson my overall max possible loss should the trade move against me. To me, these near date options are very expensive right now. If price should continue up, even with the options having a short expiration date, I should have the ability to roll or adjust my position early next week if needed.

Spread is 52 - 62.

While is tempting to open another credit call spread as price has moved higher, I don't want to be exposed to additional risk.

Regarding my the bear debit put spread i opened (another post), in hind sight that was a poor decision. The good thing is since I used premium received from the first credit call spread, I didn't use any of my own money for the trade. IF the price moves significantly lower early next week, I should still have the ability to roll & adjust the spread for minimum cost. However, with the current price gap of the first and second month VIX             futures , price may not move enough for a roll/adjust to make sense for the put spread.

W:
Trade active:


Will let the options expire versus manually closing position. Options are basically worthless at this time. Trade worked great. I would love to implement this strategy again, but unfortunately IV% has drastically dropped and the options are very inexpensive. Selling a new credit spread would be taking risk without appropriate potential gain. The positive is I was able to run it back to back two times. 2018 has the potential to be a volatile year, so I expect to have other opportunities in the future.
Selling a 70 Delta, buying a 30 Delta call spread, if and only if contango is greater than 5% is a very profitable strategy. I can provide backtests if you'd like to see it.
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JLJ002500 mikejody
@mikejody, Thanks for the message. I would like to see the backtest. Your strategy makes sense in times of low volatility. I believe the last greater than 5% contango was 1/26 when VXX was less than $30. I'm just making an educated guess, but I imagine a 70 delta call was close to $25C and there would have been a 10+spread for the 30 delta. My estimate may be way off depending on what the IV% was at that time. But it's safe to say that would have been the absolute wrong time to place that trade. We've had years of low VOL, but that has change and I expect VOL to be significantly higher for an extended period of time. I like selling when IV% is substantially elevated and shows signs of peaking. I feel more comfortable selling a 50 delta and closing the position early in case IV% spikes again. I know contango and backwardation has much to do with the expected future price, but at this time I don't focus on it much. It seems to be too unstable with volatility. Maybe I'm lacking the data to make an educated decision.
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mikejody JLJ002500
@JLJ002500, Thanks for the comments here. This is a 5 year backtest, which does not take into account Contango/Backwardation: http://tm.cmlviz.com/index.php?share_key=20180409181210_PC6N0wr88Xs24TLf. I may be confused, but my initial statement above was to mean buying a put spread at 70/30 only during times when Contango was 5% or greater, which would completely eliminate any trading on 1/26.
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JLJ002500 mikejody
@mikejody, VIX Central has the % contango for F1-F2 6.09% on 1/26/18. Am I looking at something incorrect?

The study data is interesting. It also makes sense because of the natural time decay eroding the price. 5 years is a good time line. It looks like it is using 90 day expiration. Does the backtest hold the options till expiration? Does it hold multiple positions at once, or only one? How many trades did it make during the 5 years? Is there anyway to isolate the period between 6/2015 - 5/2016?

Again, great information. Thank you for sharing.
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mikejody JLJ002500
@JLJ002500, Sorry didn't see your questions here before I saw your one about CML. Yes, you're correct on the 6.09% contango on the 26th. Anything lower than that and I stay out of shorting volatility for obvious reasons.

With CML you can change the expirations, the holding time, the strikeprices, etc. The backtests will hold for the holding time selected. It can hold multiple positions up to 4 legs. So if you wanted to do an Iron Conor or a double Calendar, etc.

Yes, you can isolate any period you would like, 6/2015 to 5/2016 is easy to do. If you'd like I'll run the backtest for you, just let me know what parameters you want and I'll run it and post it here.
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JLJ002500 mikejody
@mikejody, Side question...do you feel CML has been a good investment for you?
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mikejody JLJ002500
@JLJ002500, Yes and no. Yes from the standpoint of being able to backtest strategies quickly and easily. No from the standpoint of implementing their trade ideas that they send out, and now that I'm done backtesting I'll probably not subscribe any further. I do like their backtesting, it's clean and simple, straightforward to use.
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