Get started

Shortcallverticals

OPENING: VIX FEB 14TH 16/19 SHORT CALL VERTICAL... for a .77/contract credit. Metrics: Probability of Profit: 89% Max Profit: $77/contract Max Loss: $223/contract Break Even: 16.77 Notes: This is way farther out than I generally like to go with these, but with the /VX term structure the way it is currently and the way it has been for the past several months, this is probably the best I'm going to get until the term structure adjusts upward giving me >16 short call strikes equal to the /VX future price in shorter duration setups. In the mean time, I'll keep my eyeballs peeled for a 45-day contango drift trade in one of the derivatives -- VXX, UVXY, SVXY on a VXST/VIX ratio of >1.00 (it's currently something like .86).
TVC:VIXShort
by NaughtyPines
3
COMPARISON AND CONTRAST: CREDIT SPREAD OR DEBIT SPREAD?You may have heard me say in the past that you should use high implied volatility strategies in high implied volatility environments and low volatility strategies in low volatility environments. A credit spread is generally considered a high volatility environment play, while a debit spread is considered a low volatility environment play. Consequently, since we're in a low volatility environment, I should be considering low volatility strategies, and pictured here is a Nov 17th 147/149 long put vertical in the November expiry. It's a bearish assumption play that costs an .82 debit to put on, has a max profit metric of 1.18/contract, and a break even of 148.18. Max profit is realized on a finish below 148.18, but I'm generally looking to manage these early, taking profit at 50% max of what I put it on for. In comparison, a short call vertical at the exact same strikes has metrics that are virtually identical -- a Nov 17th 147/149 short call vertical brings in 1.17 credit at the mid and has a max loss .83 with a break even 148.17. For all practical purposes, the two plays have exactly the same risk. It is consequently a myth or a basic misunderstanding that by paying for a debit spread (instead of receiving a credit for a credit spread), you're starting out "under water" or "behind the eight ball." Regardless of whether you think you're starting out "in the hole," the important thing is how much risk is present in the set up, and comparable put side/call side set ups have exactly the same risk. So, why would I choose a debit spread over a credit spread if the metrics are exactly the same? The answer: flexibility. Consider what would happen if price continued to rip away from your bearish assumption setup in the case of a short call vertical versus a long put vertical. In the case of the short call vertical, the short call increases in price (it becomes more "monied"), as does the long call. In the case of the long put vertical, the short put decreases in price, as does the long put (they become less "monied"). In both cases, the setups start to "go red." Unfortunately, in the case of the short call vertical, there's not much you can do to take advantage of the situation besides wait (you can roll the long call away from current price to lock in its increase in value, but this widens the spread, and therefore increases your risk and buying power reduction). With the short put vertical however, you can potentially "work it" intra-expiry without increasing your risk and to potentially mitigate loss, and that is by rolling the short put toward current price on the options decrease in value, rolling a long put vertical into a narrower vertical or rolling what was a long put vertical into a short put vertical. Naturally, you want to do any rolls like sparingly and mechanically (e.g., roll the short put to the 30 delta at 30 days until expiry) ... .
AMEX:IWM
by NaughtyPines
1
OPENING: VXX OCT 20TH 52/54 SHORT CALL VERT... for a .50 credit. Probability of Profit: 63% Max Profit: $50/contract Max Loss: $150/contract Break Even: 52.50 Notes: Setting this up at the 50 delta strike. The set up isn't that "sexy" in terms of premium collected versus max loss, but going small on this minor VIX pop. Would prefer going 50 delta short call vert in this instrument on corresponding /VX front month at 16 or greater, but ain't getting any younger ... .
AMEX:VXXShort
by NaughtyPines
3
OPENING: VIX JULY 19TH 16/19 SHORT CALL VERTICAL... for a .75 ($75)/contract credit. Another "Term Structure" trade (See Posts, Below). Since the beginning of the year, all of them have been setup as 16/19's or 17/20's and have been filled for around .75/contract. Naturally, I look to set these up in expiries of 90 days or less; 120 days, after all, is an awfully long time to "get your candy." That being said, I do shoot to take these off at 50% max, so it's not like I'm usually waiting until the bitter end. The additional notion here is that the summer months (May (when you're supposed to sell and go away) through August tend to be cyclically quiet months for the market and for volatility), so I'm comfortable with going out a little farther in time with these if they fall in that period ... . Notes: A few people have asked whether I'm "short VIX" with these. That would be basically correct. However, the real notion is that if you look at long-term moving averages, VIX stays below "the blue line" (currently, 15.37) the vast majority of the time, so these setups are bets that it will continue to do that or -- at the very least -- be below that during the life of the setup such that these can be exited profitably. That being said, it's only a matter of time before VIX rears its ugly head and pokes itself over the line, and I'm fine with that, since I can roll these spreads out in time if, as expiry approaches, it appears that price will not be below the short call strike ... .
TVC:VIX
by NaughtyPines
OPENING: VIX MARCH 22ND 16/19 SHORT CALL VERTThis is another one of them there "Term Structure" trades which use the VIX futures as a guide for the short call strike. Here, I'm using /VXH7, which is the March VIX futures contract, which is currently trading at 15.72, so I'm using the 16 short call in VIX. ... Filled for a .71 credit. Notes: This is a little bit farther out in time than I generally like to go, but /VXG7 (the Feb futures contract) is currently trading at 14.30, and I kind of want to stay north of that 252 EMA line (in blue) with my short call strikes.
TVC:VIX
by NaughtyPines
OPENING: VIX FEB 20TH 17/20 SHORT CALL VERT... for a .66 ($66)/contract credit. I did this on 12/30, but neglected to post it. This was another VIX "Term Structure" trade (See Post Below) using the Feb VIX futures contract price as a guide. The Feb contract was going for 16.55, so I used the nearest strike above that price, the 17, for my short call leg. With these, I'm playing it "by ear" as to the take profit. Generally, I shoot for 50% max, but if VIX diddles around down here running into expiry (which in the scheme of things, is quite far out in time), I'll shooting for something approaching max ... .
TVC:VIXShort
by NaughtyPines
TRADE IDEA: UVXY (POST SPLIT) FEB 17TH SHORT CALL VERTICALI'm doing a little planning ahead here for the UVXY 5-1 reverse split, currently scheduled to occur on Jan 12th. Truth be told, UVXY is not one of my favorite VIX derivatives to play, largely due to options liquidity, which leads to wide bid/asks that you have to putz with in order to get filled for something vaguely approaching a "fair price." Nevertheless, I think splits in the derivatives (VXX, UVXY, and SVXY) are something to be taken advantage of to put on "contango drift" plays in these instruments, (See Post Below), particularly here, where contango is particularly steep. (See vixcentral.com). Since I don't know precisely at this moment what the "split-to" price is yet, I won't know exactly what strikes to use and what the cost of the setup is. However, this is the plan: 1) Post split, buy the long call that is ATM or one strike below. 2) Post split, sell the short call that is 3 strikes below the long call strike.* This will create a 3-strike wide, short call vertical, for which you'll receive a credit and which you'll look to exit for at least 50% of the credit received. If price breaks through your setup running into expiry, you'll roll it out "as is" for duration (to a later expiry), wait, and repeat the process until contango erodes price to such an extent that you can exit the setup profitably. (Alternatively, you can roll the setup down, chasing the underlying's price on its decent ... .) * -- A possible alternative setup is to go deep in the money with this credit spread. You'll get a larger credit "at the door" and experience a smaller buying power effect. However, you'll be stuck rolling the spread out repeatedly for duration until contango erodes the price of the underlying such that price eventually clears your short call. Naturally, a pop in VIX (and therefore UVXY) could occur while you're attempting to do this, leading you to be in such a setup longer than you'd like.
AMEX:UVXYShort
by NaughtyPines
WHAT I'M LOOKING AT FOR EARLY 2017: VIX/VIX DERIVATIVE PLAYSWith Dough transitioning over to TastyWorks (it's basically Dough on steroids), I'm looking to wind up positions I've got on here over the next several weeks so that I can transition over to TastyWorks, which will not interface with TDA accounts. While I can naturally use ThinkOrSwim (ToS), it just doesn't have the features of Dough that I've come to know and love. Call it laziness, lack of "platform fluency," or a geezerly unwillingness to change, I'm not willing to "do without my Dough." My original intention was to wind up everything in time for the TastyWorks roll out (Jan 3rd), but I figured I would just "carry on" until TW was firmly up and running, the mad rush at the TW doors had ebbed, and the inevitable glitches or kinks had been worked out. It is, after all "a new broker," and shit can happen ... . Generally, I prefer that shit happen to someone else. Okay, call me "lazy" and selfish. In any event, being somewhat hobbled by the unavailability of Dough IVR/IV screeners here (I have other tools to screen for those, but they're extra work), my focus is going to pretty much be solely on short volatility product plays here over the short run, with the emphasis being on VIX "Term Structure" plays and "Contango Drift" plays in VXX and SVXY (UVXY is getting awfully close to reverse split territory, and I don't want to be in the middle of an options play when that happens; they're "messy"). Unfortunately, these are some of the most boring plays out there. For "Contango Drift" plays, you're basically sitting on your hands a lot, waiting for a pop in VIX, preferably to >20, and you can be waiting literally weeks for those to occur. With "Term Structure" trades, you put them on and wait sweatily for the VIX futures price to converge on spot, ideally below your short call strike before your options expire. If they don't, you look at rolling your spreads out for duration, which means (you guessed it), additional waiting for volatility to "come in." I'll look at posting a "Contango Drift" example here, since I've already got some "Term Structure" examples out there to look at ... .
AMEX:VXX
by NaughtyPines
1
EXAMPLE: VXX 30 DTE X/X+3 ATM SHORT CALL VERT (CONTANGO DRIFT)As previously noted in other posts, the short volatility product plays I like most are "Term Structure" plays in VIX and "Contango Drift" plays in VIX derivatives, with the preference being toward the latter play, since you're getting in on a pop in VIX and then taking advantage of "Contango Drift" in the derivatives to the downside (in UVXY, VXX; SVXY is an inverse, so you're looking to take advantage of "Inverse Contango Drift" to the upside). Here's what I'm looking to get into a "Contango Drift" play: 1. A VIX pop to 20 or greater. For various reasons which I've elucidated before, I use the VIX price as a guide to enter these plays and not the price of the derivative itself. That being said, some traders use a 2 SD Bollinger Band as a rough guide as to when they would want to consider an entry. I really can't poo-pah that, since the last two BB touches (indicated by green arrows) would have been winners. 2. An ATM Setup That Pays at Least 1/3rd the Width of the Spread. I generally go with an ATM credit spread for which I get at least 1/3rd the width of the spread in credit (i.e., for a three-wide, I look to get 1.00 ($100) in credit per contract). This may require some "putzing" with the spread, moving it up or down in relation to current price. 3. Roll Out for Credit/Duration If Price Has Not Broken Short Call Strike by Expiry. No one likes to roll out for duration, since it usually means that the setup is "broken" and you'll be booking a realized loss in the short term if you do that. However, with contangoized setups, time/duration is on your side; the longer you hold the setup, the more likely it is that contango will work its fairly inevitable magic on it. 4. Go Small, Since "Shit Happens." Unfortunately, markets don't always "behave" the way we'd like them to. VIX can "elevate" for periods of time that are longer than we'd all like and send the derivatives into temporary periods of backwardation that aren't favorable to these setups; they'll be underwater and you'll be holding them longer than you'd like. Going small allows you to ride out periods of backwardation, as well as keep buying power free for getting into similar setups "higher up the ladder" if that sort of thing happens. If we do get a VIX pop to greater than 20, I'll post an actual trade setup. In the mean time, hand sitting ... .
AMEX:VXX
by NaughtyPines
VIX: FOR THE NEXT POP, LADDERED SHORT CALL VERTSThe last VIX pop around elections, I chose to piddle with an SVXY ATM short put credit spread (see post below). It worked out great, but SVXY isn't the most liquid thing in the world (I knew that going in). In comparison, VIX options are about the cleanest short volatility setup you can get, although a small drawback is that you won't get the added contango erosion present in things like VXX, UVXY, and SVXY. If you're going to go a similar route with one of these derivative instruments, however, I'd go with VXX, since it's the most liquid of the trio.* The notion here is to set up the ladder at the top of the "pop arc." Naturally, knowing where that is going to be precisely is impossible, but VIX long-term history suggests that VIX >20 is probably a place to start thinking about it. The highest rung of the ladder will basically be at-the-money, with lower rungs in-the-money and positioned for the "elevator ride down." The first rung will be in an expiry 30 DTE;** the next rung, the next expiry after that, etc. This is to allow lower rungs additional time to work out since they have "have farther to go," so to speak, although if you look at the last "spike" around elections, this wouldn't have mattered much -- VIX went from 23 to below 15 in a matter of days and a similar laddered setup in mid-November would have probably resulted in reaching max profit on "all the rungs" in fairly short order. A variation is to "ratio" the number of contracts used, weighting the top rung, for example, with 3 contracts; the next one with 2; the third, with 1. As far as trade management is concerned, I generally look to "money, take, run" with VIX/VIX derivatives. The "money, take, run" point is subjective, but I start thinking about taking stuff off at 50% max profit. If volatility doesn't recede below your short call strike by expiry, roll the setup out "as is" for duration and credit; VIX inevitably drops below 15 at some point in time. * -- If you're going to use VXX (which is subject to contango), look at VIX levels first and consider entering a VXX laddered setup at based on VIX's price extreme. Alternatively, I've used Bollinger Bands (set to 2 SD) on a daily VXX chart to give me a rough place to consider entering (around the upper Bollinger Band). ** -- This can naturally be varied, starting the first rung two weeks out, the next, three, etc. I personally like to have at least 10-14 days to work with on my shortest duration setup.
TVC:VIX
by NaughtyPines
TRADES TO MAKE IN PREPARATION FOR A BREMAIN RESULTI don't trade news, but this is an event whose outcome I think is now relatively certain (Bremain) such that it might be worthwhile to take a small position to take advantage of the relief rally that will occur if that is the result. Naturally, I could be totally wrong on the result, but the probability of a Bremain vote is currently higher than a Brexit vote, if the bookies have anything to contribute to the discussion ... . In any event, here are the ideas, roughly in the order of my preference: 1. Gold Short. Gold is again butting its head against the psychological 1300 resistance level here, and its been sideways between 1200 and 1300 since mid-February, having previously unsuccessfully challenged the +1300 mark in early May before giving up the ghost all the way back to 1200 by May's end. A meaningful relief rally in equities on a Bremain vote may guide the precious metal lower. Because I'm currently in a GLD position, I've chosen to close the put wing sides of my GLD iron condors, leaving short call verticals in place to take advantage of any downturn. If the short call verticals don't hit max profit outright, I'll merely wait and buy the dip by adding the short put wings back in if there's a significant drop in price. Trades: GLD or GDX short call verticals above current resistance. 2. TLT short/TBT long. Traders have fled risk-on assets a little bit here in advance of the referendum. As with gold, they've sought out safe havens such as treasuries, driving TLT to within 5% of its 52-week high and TBT to within 5% of its 52 week low (TBT is the inverse of TLT). Trades: TLT short call verticals above current resistance; TBT short put verticals below current support. 3. European Indices/Index ETF's Long. Naturally, you can play US equities indices long here, but since this is uniquely a European "thing," I would think you'd want to put plays in European indices or index ETF's to get the full brunt of the relief rally and not the spillover that will occur into US markets. Although the Euro index ETF's have already experienced a bit of resurgence off of lows, they may have further upside once the referendum is over. Trades: EFA short put verticals below current support. 4. Cable Pairs. GBPUSD is the most obvious choice for a bullish assumption, although it's already rallied from the 6/16 low by 200+ pips, although it may have another 350 pips to the upside in it (the 5/26 high). In all of these instances, I would trade small and, if trading the underlyings directly, I would common sense in setting stops. Keep in mind that all these assets are likely to move "in tandem," so I would pick one to trade and not put on trades in the others. The reason my preference is for a gold trade is that (a) it's a mover; (b) it's already at resistance; and (c) well, to be honest, I've already got a GLD trade on that I can use to take advantage of the movement.
by NaughtyPines
3
SOLD RUT/IUX APRIL 8TH 1100/1110 SHORT CALL VERTICALAfter closing the short call wing of my original iron condor, I rolled out the short put wing down one strike and out one week to the April 8th expiry to give it a little more room and a little more time. I'm just matching that rolled out side with a new call wing to hedge, resulting in an April 8th 1050/1060/1100/1110 iron condor. Since I rolled out the short put size for a miniscule debit ($4), I'll look to take off the entire setup at 50% max profit or either side when it approaches near worthless ... .
I
by NaughtyPines
GLD -- ROLLING OF SHORT CALL SPREADSSeveral weeks ago, I iron condored GLD on the notion that we would see some resistance around the 111 area. The short call spread of that original iron condor was 111/114. I stripped off the short put side at near worthless and also added to the position with a GLD 115/118 short call spread. Needless to say, 111 provided scant short-term resistance and now GLD is flirting with breaking 120. So currently I'm left with two troublesome short call spreads in the March 18th expiry -- a short 111/114 and a short 115/118. While there is still some time for these spreads to work out, I am not hopeful, particularly with the 111/114, so I figured I'd attempt to do some house keeping here ... . (Naturally, the ideal situation would be to wait for a substantial dip in price, since I will be rolling the short call spreads out and selling a short put side against for a credit that exceeds the cost of the roll ... ). What to do? The answer is to "putz with setups." So I proceeded to (a) look at what it would cost to roll out both of these spreads, improving each of them by a single strike (i.e., rolling the 111/114 to 112/115 and the 115/118 to the 116/119) in various expiries; (b) look at what it would cost to roll both spreads out, but improving only the strikes of the 111/114, also in various expiries; and (c) what I can get for credit for the sale of an oppositional short put credit spread against the rolled out positions. So, here's the plan I came up with after looking at all the possibilities: I'm looking to roll out the 111/114 up and out to the June 17th expiry 115/118 for a 1.07 debit and the 115/118 "sideways" or "as is" and out to the June 17th expiry for a .57 debit. This will essentially "merge" the two spreads into a single June 17th 115/118 short call spread. The total cost to roll these two spreads is 1.64 (assuming I can get a fill of both at these prices), which means that I will want to sell a short credit spread against these rolled out positions for something in excess of 1.64. The June 17th 111/114 (rather ironically, since this is what the short call side of my iron condor started out at) fits this bill, as it will bring in an .82 credit/contract. (Keep in mind that the 115/118 is now "times 2," since I'm going to be merging the March 18th 111/114 with the 115/118). The result will be a June 17th 111/114/115/118 GLD iron condor. Naturally, were this to be an "original" setup, it would be low probability and probably qualify as "horrible." The only way it completely works out at expiry is for price to magically settle between 114 and 115 (the short put and short call strikes, respectively). However, we these broken setups, the goal isn't to roll into an ideal 70%+ probability of profit setup, but rather to gradually mitigate loss and to slowly work it into a state where you an exit one side of the trade at or near max profit, and then to exit the other in the same state ... . Of course, sometimes it takes longer than you'd like. (A Side Note: I considered adding risk here on this up move with an additional short call spread above current price (e.g., an April 15th 129/130 GLD short call spread currently goes for a .35/contract credit), but thought the better of it, since the jury's still out as to whether it will break 120 ... ).
AMEX:GLD
by NaughtyPines