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%…
Just when you thought The Fed's credibility could not drop any further... it does. For the first time since the financial crisis, the market now sees a greater probability of a rate cut than a rate hike... for the next year.
As rate-hike odds collapse...
In fact, "bets" on an eventual dip into NIRP have surged to record highs, and we suspect even higher today...
My friend and fave policy bear Peter Boockvar has some unanswered questions worth considering in the wake of the historic events of this week…
Ok, so let’s now deal with what’s next. I acknowledge the chaotic response and the shock on the part of many to what took place. The disruptions will be plentiful. For the UK, businesses will reign in investments and decision making may get paralyzed but I believe this would only be short term in nature. The UK will adjust, deals will get redone, lawyers will have a field day and at some point in coming years the UK will deal with the EU just as Switzerland and Norway do today. Of course what becomes of the ...
By Jacob Wolinsky. Originally published at ValueWalk.
There has been a LOT of discussion about the Brexit vote and what the implications are (although none of us can predict the future), but one interesting point many seemed to miss is the impact on the world’s largest economy after the USA and EU – China. How does a Brexit impact the world’s largest country by population? No one knows for sure but it will likely have a big impact on China. Quartz is saying its bad while Bloomberg News says its good.
UK chancellor George Osborne, meanwhile, promised a “golden decade...
Earlier today the Census Bureau posted the Advance Report on May Durable Goods New Orders. This series dates from 1992 and is not adjusted for either population growth or inflation.
Let's now review Durable Goods data with two adjustments. In the charts below the gray line shows the goods orders divided by the Census Bureau's monthly population data, giving us durable goods orders per capita. The blue line goes a step further and adjusts for inflation based on the Producer Price Index for All Commodities, chained in today's dollar value. This gives us the "real" durable goods orders per capita and thus a more accurate histo...
I have mixed feelings about Brexit today. Clearly the European institution need reforming. The addition of so many countries in the last 20 years has created a top heavy administration. The Euro adds more complexities to the equation as the ECB policies cannot fit every country's problem. On the other hand, a unified Europe has advantages as well – some countries have benefited from the integration.
For Britain, it's hard to say what the final price will be. My guess is that Scotland might now vote for independence as they supported staying in Europe overwhelmingly. Northern Ireland might be tempted to leave as well so possibly RIP UK in the long run. I was talking to some French people and they were saying that now there might be no incentive for France to stop immigrants from crossing over to the UK like they do now and simply allow for travel there and let the UK deal with them. The end game is not clear to anyone at the moment....
One week ago, when bitcoin first crossed above $700 on the seemingly insatiable Chinese buying which we forecast last September (when bitcoin was trading at $230) would take place as a result of China's capital controls (to much pushback by the "mainstream" financial media), we tried to predict what may happen next. We said that "it could go much higher. That said, anyone who bought last September when the digital currency was trading at $230 may be advised to take some profits, and at least make...
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After a three-year bull run that more than quadrupled its value by its peak last July, IBD’s Medical-Biomed/Biotech Industry Group plunged 50% by early February, hurt by backlashes against high drug prices and mergers that seek to lower corporate taxes.
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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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