NaughtyPines
Long

YET ANOTHER VIX PRODUCT LONG SETUP (VXX)

AMEX:VXX   IPATH S&P 500 VIX SHORT-TERM FUTURES ETN
31 0 1
While my go-to is VIX             just because of the "cleanliness of its bottom," I am not immune to the siren song of VXX             ; in spite of its warts, it has an obvious attractiveness to speculators who trade it not as a hedge against potential broader market downturn, but as in instrument in itself, capable of several percentage points of movement in a day, which can be profitable, but injurious as well. Consequently, I've looked at and played multiple types of setups in VIX             and VIX-related products for eons, but usually long and then only from price extreme bottoms.

One play I have not considered is a VXX             covered call where you would take a long position in VXX             stock and then sell short calls against it, reducing your cost basis in the stock , after which you would proceed to bail from the position when either (a) called away at expiration because the price of the underlying exceeds the price of your short call; or (b) selling the VXX             covered call outright prior to expiration on one of these inevitable spikes we get from time to time.

Ordinarily, with covered calls, I'm looking for a couple of things, one of which is whether I can receive sufficient premium for the short calls such that the setup is worthwhile.

Here's an example to show you what I mean:

100 Shares VXX             @ $18.22
Jan 22nd 18.5 short call (mid-price, $1.70)
Mid Price of Entire Setup is $16.57 contract

The credit your receive of $1.70 for the short call (which is a mere .28 above the current price of the underlying) reduces the cost basis of your 100 long shares by 9.3% and makes your break even price for the underlying at $16.57. If you could get this kind of premium month in and month out, you would reduce your cost basis in your VXX             position to $0 in about 10 or 11 45 DTE             cycles (assuming you weren't called away at some point or didn't just sell at one of these price spike events).

Although current price isn't particularly "ideal," I'm going to look at doing VXX             covered calls going forward, particularly if we break $18 ... .
Ideas Scripts Chart
United States
United Kingdom
India
España
Italia
Brasil
Россия
Türkiye
日本
한국
Home Stock Screener Economic Calendar How It Works Chart Features House Rules Moderators For the WEB Widgets Stock Charting Library Priority Support Feature Request Blog & News FAQ Help & Wiki Twitter
Private Messages Chat Ideas Published Followers Following Priority Support Public Profile Profile Settings Billing Sign Out