Obviously a bunch of us just got schooled in VXX products, especially SVXY.
Some things I have learned.
1. it can really go to zero and be closed down. Even if cash secured you can still be wiped out so spreads probably make more sense.
2. Most of the time it is going to infinity but can also race to zero. In looking at the news now that I have time, they had a huge margin liquidation (probably a hedge fund having to close) and that is why we closed at 70.81 but gapped down as low as 10. Had they not had to do that we probably would have opened around 70.
3. as soon as we see backwardization probably worth closing anything on the put side. I could have been out yesterday with only minor losses. Now looking at 80% haircut once assigned.
4. The option liquidity dries up and bid-ask spreads become ridiculous with a volatility spike
5. I can work with a big loss, cannot do anything with bankruptcy/liquidation. Things that appear liquid may not be all the time.
6. Somedays better to be lucky than good. Glad they are closing XIV and not SVXY. Hope no one here was in XIV but probably not since must of us are option traders.
7. You can lose money a lot faster than you can make it, even if you know what your are doing.
Now going forward.
1. Once liquidity returns will be selling OTM delta 16 or lower calls to try to reel back in some cash.
2. Once I have recovered enough of my original investment will collar that thing so no wipe out type losses.
3. Stay small, have a lot of different eggs in the basket(s) so no big loss. Have to admit I was getting over confident with the VXX trades. My mostly stock accounts have already recovered.
4. Fortunately not all my expirations are the same day so I can stagger some of the losses and may get to roll some once the options are trading well again.
Hope everyone finds a way out profitably, it will take a while but once back to contango we should be back in the right direction at least.
I will only play these trades now with “house money”.