I picked up this idea from Jeff Augen’s book, "Trading Realities: The Truth, the Lies and the Hype In-Between." Augen has written a fine series of books on trading options and I have bought and sampled from all of them. He notes the favorable risk/reward profile on buying VXX, which is a ETN attempting to track the short-term futures on the VIX, and selling at-the-money calls on it while the VIX is low. Augen notes that theoretically you could lower your cost basis in a year’s time to almost zero using this method every month. But it gets even more interesting using weekly options. I bought VXX ETN at $14.92 today and sold the $15 strike on the October 22 weekly options for $.58. That is about 3.8% profit if VXX does not move at all.
That is what I’m trying to average on a trade per month!
Let’s take a look at the one year chart on VXX:
You can see how low VXX has dropped. Unlike a stock you know this chart is not going to drop to zero. Volatility cannot disappear or go bankrupt. There will always be some level of volatility, so there is a limit to downside risk. The VIX, which is a measure of put buying, closed at 21.68 today, which is fairly low volatility. If you had to say which way volatility is moving right now, is it more likely to go up or down in the next month? I’m voting for up, since we have earnings season, elections and a rally that looks like it could roll over at any time. With a low VIX and higher expected volatility events, doesn’t it make sense to sell covered calls on volatility at least until the VIX clears 25.
I’m planning to sell the weekly at-the-money calls up to that point, which may only be one week if the market drops. I’m sure speculators could arrange more profitable trades, but I am looking for income and retirement investments, so I’m not getting greedy and buying calls or some other idea. I am considering selling at-the-money puts in my margin account. Let me know what you think of the idea. The risks I can foresee are poor tracking of the VIX by VXX and that volatility is driven into oblivion. But the VIX rarely drops below 15, which would be a 25%…
The Global Monetary Reset is under way, but people have not noticed it yet. The key is the move to zero interest rates.
Government debt almost everywhere is too high to ever pay off, let alone pay a traditional rate of interest on. As debts come due, including as bond issues mature, the only option governments have is to roll over the debt and accumulated interest, and the only way they can afford to do that is if money printing is a continued practice and interest rates are at or near zero. QE ...
OPEC is pointing the finger at speculators as well as Non-OPEC countries, but especially US shale producers for the crude price crash.
Let's explore that idea in a series of charts. But first let's take a look at the allegation.
The Wall Street Journal reports Gulf Oil Exporters Blame Non-OPEC Producers for Glut. Gulf oil officials on Sunday defended OPEC’s decision last month to keep its production ceiling intact, blaming producers outside of the group for the glut of oil on the market that has depressed prices.
Speaking at an energy conference in Abu Dhabi, Saudi Oil Minister Ali al-Naimi blamed a lack of coordination from producers outside the Organization of the Petroleum Exporting Countries...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
NOTE: readtheticker.com does allow users to load objects and text on charts, however some annotations are by a free third party image tool named Paint.net Investing Quote...
..“The market always tells you what to do. It tells you: Get in. Get out. Move your stop. Close out. Stay neutral. Wait for a better chance. All these things the market is continually impressing upon you, and you must get into the frame of mind where you are in reality taking your orders from the action of the market itself — from the tape.”…
Richard D. Wyckoff .."Markets are constantly in a state of unce...
Reminder: OpTrader is available to chat with Members, comments are found below each post.
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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Stocks have needed a reason to take a breather and pull back in this long-standing ultra-bullish climate, with strong economic data and seasonality providing impressive tailwinds -- and plummeting oil prices certainly have given it to them. But this minor pullback was fully expected and indeed desirable for market health. The future remains bright for the U.S. economy and corporate profits despite the collapse in oil, and now the overbought technical condition has been relieved. While most sectors are gathering fundamental support and our sector rotation model remains bullish, the Energy sector looks fundamentally weak and continues to ran...
Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...
I officially bought 250 shares of EZCH at $18.76 and sold 300 shares of IGT at $17.09 in Market Shadows' Virtual Portfolio yesterday (Fri. 11-21).
Click here for Thursday's post where I was thinking about buying EZCH. After further reading, I decided to add it to the virtual portfolio and to sell IGT and several other stocks, which we'll be saying goodbye to next week.
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
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