So without being back in contango SVXY is now up 1.2% on the day. I have been looking at percentages and found some info that the reason it dropped so hard was because of the difference in the short vs. long term VIX nunbers. Had long term vol. been higher, the drop would not have been as severe. It appears that you have to watch the potential spread and the wider it gets, the more damage a volatility spike will cause.
Since vol had been so low, the difference caused by the spike was more severe.
Anyway, I certainly won’t trade it unhedged again but I think it is a useful tool for income and trading.
Also, at these suppressed levels the option premium is not there to justify selling cc yet, at least for me. We start getting some decent premiums I will start selling weeklies against it but need at least 0.40 a few strikes OTM before I would call that decent. Had you sold the ATM you would already be rolling.
Once back in contango (vix below 17 should trigger), the drag from rolling the options should start to have a good benefit. Historically about 1-2% every 2 weeks in looking at the contango history.
Do we zoom back to 140, probably not. But if we can stay in contango for a while, we could be sitting at the 30-40 level again in 6 months. That would be enough of a recovery for me to close everything out and move the earned back cash to other vehicles.
I think the best way to trade this would be #fuzzies after a vol spike. Controlled risk, no cap on upside if you do not sell calls against it.
I know a lot of us were burned on this and I can feel your pain, 2 IRA accounts almost completely wiped out, but I think if we are patient, hedge gradually on the way up (buy puts in case it goes to zero), we can get back most of what we lost in about 6-12 months. Of course any additional vol. spikes will slow that down. Be patient but hedge.
Just thinking out lot. Anyone else have anything to add please comment……….