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%…
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 firstname.lastname@example.org 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.
Having exploded 18% higher in August (driven by, um, record high prices), September's new home sales printed at 467k (against expectations of 470k) and August's surge to 504k was revised lower to just 466k (busting the biggest beat since 2005 meme) revised 7.5% lower. After August's reported 50% MoM rise in The West, the region saw the rate of sales slow in September. The median new home sales price (at record highs last month) fell 4% YoY to $259,000.
The Department of Energy's Energy Information Administration (EIA) data on volume sales is over two months old when it released. The latest numbers, through mid-August, are now available. However, despite the lag, this report offers an interesting perspective on fascinating aspects of the US economy. Gasoline prices and increases in fuel efficiency are important factors, but there are also some significant demographic and cultural dynamics in this data series.
Because the sales data are highly volatile with some obvious seasonality, I've added a 12-month moving average (MA) to give a clearer indication of the long-term trends. The latest 12-month MA is 8.9% below the all-time high set in August 2005, a new interim low.
My title above is only half-kidding. Because everytime Wall Street pronounces “The Death Of” anything, that’s pretty much when it starts working again. But there is an important point being made in a new article at the Wall Street Journal about the current state of some of our biggest stalwart stocks and their underlying businesses, a point I made two days ago here…
Here’s the Journal:
A third of the companies in the Dow Jones Industrial Average have posted shrinking or flat revenue over the past 12 m...
There is lots of action in Southwest Airlines Co. November expiry call options today ahead of the air carrier’s third-quarter earnings report prior to the opening bell on Thursday. Among the large block trades initiated throughout the trading session, there appears to be at least one options market participant establishing a call spread in far out of the money options. It looks like the trader purchased a 4,000-lot Nov 37/39 call spread at a net premium of $0.40 apiece. The trade makes money if shares in Southwest rally 9.0% over the current price of $34.32 to exceed the effective breakeven point at $37.40, with maximum potential profits of $1.60 per contract available in the event that shares jump more than 13% to $39.00 by expiration. In September, the stock tou...
Last week brought even more stock market weakness and volatility as the selloff became self-perpetuating, with nobody mid-day on Wednesday wanting to be the last guy left holding equities. Hedge funds and other weak holders exacerbated the situation. But the extreme volatility and panic selling finally led some bulls (along with many corporate insiders) to summon a little backbone and buy into weakness, and the market finished the week on a high note, with continued momentum likely into the first part of this week.
Despite concerns about global economic growth and a persistent lack of inflation, especially given all the global quantitative easing, fundamentals for U.S. stocks still look good, and I believe this overdue correction ultimately will shape up to be a great buying opportunity -- i.e., th...
Now that bitcoin has subsided from speculative bubble to functioning currency (see the price chart below), it’s safe for non-speculators to explore the whole “cryptocurrency” thing. So…is bitcoin or one of its growing list of competitors a useful addition to the average person’s array of bank accounts and credit cards — or is it a replacement for most of those things? And how does one make this transition?
With his usual excellent timing, London-based financial writer/actor/stand-up comic Dominic Frisby has just released Bitcoin: The Future of Money? in which he explains all this in terms most readers will have no tr...
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What do falling energy prices mean for the US consumer? Sober Look writes a brief yet thorough overview of the consequences of the correction in the price of crude oil. There are good aspects, particularly for the consumer, bad aspects, and out-right ugly possibilities. For more on this subject, read James Hamilton's How will Saudi Arabia respond to lower oil prices? In previous eras, Saudi Arabia would tighten the supply to help increase prices, but in this "game of chicken," the rules m...
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Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
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