Looks like a few short sellers covered in front of the Fed minutes yesterday, and at midday today. And why wouldn’t they? Every Fed event has meant a 20 point S&P rally. Once the ambiguous nothingness of the Fed minutes had been digested, the sellers got right back to liquidating positions, or reshorting:
Today you could have made the same money twice in the VXX, selling the Fed, then buying the vol dip. A few wily traders out there are lighting up a cigar today. Here is the VXX 15.5 put. If you bought it at the release, you made a double. If you shorted it right after, you had an outstanding day. This is so realistic a trade, because you know that the VXX holds all September futures in the fund right now and with all of the obstacles ahead for the market, it puts a floor into VXX:
If you’d rather use the VIX future itself, with it’s 15/4 leverage roughly, here is the same thing, as it occurred today:
It is that easy. The VXX options are more treacherous and need to be constantly managed, but this futures trade does not. You buy the future near 15 and sell it when it spikes (set a GTC to sell and walk away). That’s it. Now, you can do this with the VIX options, buying the Sep $12 or $13 call, and selling them on moves, but they have more premium and are more sluggish. An alternative would be the Â in-the-money calls a couple weeks out with the VXX, because the negative roll is much less than it has been. Here is how that would have worked out:
This call is not ideal, but it gives you some wiggle-room with regard to time as you wait for a VIX spike. I almost never recommend owning VXX calls, but when the VXX is holding all of one future, and the roll is small, you get a far more efficient VIX vehicle to trade.
Anyway, the futures look like this:
Not much has changed with regard to the my strategy. I’ve harped on the VIX structure for a while now, so go back and read prior articles to understand why the VIX derivatives offer some excellent low risk opportunities right now. I was in and out of the UVXY put spreads today.
I also opened up a weekly IWM put vertical spread at $101/100.5 for .10 that can pay .50 if the IWM ends the week below $101.5. I think you would agree that those odds are great considering we are less 1% away from that target. I love 5-1 asymmetry; you don’t have to win them all to stay in business.
I did one other trade, but I did not tweet it out. I sold a weekly LOW bear call spread for .72 at $45/46. Again, the risk is .28, the return is .72. Get the idea? 2.57-1 risk/reward. Essentially I’m fading a shooting star gap breakout to new highs, and I didn’t want to tweet that out, as I don’t feel great about it as the technicals are mixed. But I have a hard time turning down .72 on a $1 spread.
Still holding all the USO, AGQ, and AAPL positions mentioned yesterday.