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  1. stjeanluc

    Phil and members interested in the volatility trade – Wanted to check with you on an idea I started testing. Up to now I have been playing the VIX by selling calls against UVXY but I stopped because a) they reset too much and b) I don't like being short calls to begin with. But I am now looking at the opposite trade which is to sell puts against SVXY. First, I believe that over the next 20 years or more, it's going to infinity (or close):

    SVXY ProShares Short VIX Short-Term Futures monthly Stock Chart

    It's 2000% in 5 years or so and the underlying instrument is very bullish. Spikes in the VIX are damaging, but the VIX always, always reverts to the mean. A big VIX spike would be a buying opportunity and I would back up the truck then. We have not seen a prolonged bear market but even then, the VIX reverts to normal quickly. In the meantime, it might still make sense to sell some premium as income. Using the old condor book as guideline, I sold 2 months ahead with a delta of 10. In this case a couple of weeks back, I sold a Dec 70 puts for $2.50 against $1200 of margin (not a bad return for 2 months). The idea would be to roll once the delta go over 20 in order not to get overrun and maybe close after one month (it's already showing a 44% gain). First DD at a lower strike and then roll away. In this case, the Dec 70 can be DD to the Dec 55 or so and then to the Jan 18 35. Roughly of course as the other greeks mean bigger changes. Worse case, the 2020 are out and you can roll to the 2020 20 P very easily if needed. And then I would just sit and get assigned if we got there and take the shares. But chances are we will never get there. I don't see the VIX staying at 50 for 2 years. If that's the case, we'll be having other problems like buying iodine tablets. Am I missing something? This looks like a decent income trade to me if you have loads of margin and are not afraid of rolling.





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Gloom and doom scenarios

 

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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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