How’s this sound for putting on decent protection for very little risk. Synthetic short stock with a protective call in SPX using Jan 2018. This would provide nice protection through the end of year.
(Keep in mind you could just buy a put instead but I feel like I could use the other positions somehow to help make a little extra if the market doesn’t fall…just not sure how yet. 🙂 )
SPX Jan 2018 synthetic short stock at 2570 and buy a 2575 call for upside protection and sell weeklies to finance…
1. Net debit on this would be about 41.50 with another 5 points of upside risk for 46.50 max loss.
2. Trade would run for 12 weeks.
3. Would need to collect 3.90 of weekly premium to breakeven (assuming max loss)
4. Currently 3.90 weekly premium is at about 2515 so 55 points of downside room.
5. The weekly put could also be rolled down for additional gain if we do implode.
6. Continue selling 50 points below every week and trade does no worse than even while continually carrying 50 points of protection.
7. What’s the risk? Market rallies hard early in the trade forcing the 50 point sale to be so high that you make nothing on the drop. Of course you still have the short term hedge since longs were doing great during the rally.
Comments, criticisms, etc.?
#vxxgame experiment 2
Was out on a bike ride before sunset and a thought hit me (almost hit a squirrel and a bald eagle eating road kill as well). I was doing intervals so there was some lactic acid and oxygen debt involved but during one of my recovery periods had a thought about the VXX/VIX trades. Income without capping the upside if set up correctly since these trades are generally so directional.
I will set up some trades next volatility spike but here is the idea. I can’t take full credit, I saw something similar on a webinar once.
SVXY go synthetic long, UVXY/VXX synthetic short or buy XIV stock if you want to play it from that side.
SVXY example. Buy the ATM leaps and sell the ATM put leaps. Buy a put 10 points or so OTM for disaster protection. Then instead of selling a weekly call against the long call, sell a credit spread. You will still bring in a little credit but then you are net long calls about 2:1 ratio so will not cap your upside. The short call is covered by the LEAP so effectively you have free calls with no out of pocket expense except the cost of the disaster put.
You could also reverse it on the downside. Buy a put debit spread or just add another few long puts to your short, then would have a ratio back spread and good gains to the downside.
I think it would solve the problem of a runaway stock but still bring in a credit which is something 99% of the people here like to do. You would still be able to sleep at night when 8/24/15 hits again and the VIX spikes to 100 and SVXY drops to 25. Loss capped to 10 points or wherever you set your short put.
Thoughts, suggestions? Anyone want to set up the opposite on UVXY next vol spike and we will see which one does better? I may do both for a supercharger effect. You could also use all leaps then have a set and forget trade like @ramie77 suggests.
The SVXY experiment has worked well except the short calls cap the gains, I know @fuzzballl and @jeffcp66 are having the same issues on the UVXY diagonals. I have $500 left in time decay over 23 days, once my shorts expire I will close all the positions for a great gain and set up the above if/when we ever have a volatility spike.
$NUGT #ShortPuts – Sold NUGT OCT 27 2017 30.0 Puts @ 0.30 with the stock at 31.13.
This account last exited NUGT at 36.0 after writing covered calls for months. Not afraid to go long again but I would rather see the puts expire.
The VIX adds another candle to the uptrend. (Click “Home/REFRESH” above to update the #VIXIndicator and other right-hand-column features)
EDIT: I added the SPX for comparison (purple line)
$WHR #ShortPuts #FallingKnife – Sold WHR APR 20 2018 120.0 Puts @ 1.50. Thanks Ramie
$NSC #ShortPuts #Earnings – Sold NSC Oct 27 2017 125.0 Puts @ 0.40 with the stock at 132.58
$SVXY #ShortPuts – Sold SVXY Nov 3 2017 75.0 Puts @ 0.40 with the stock at 103.69