#Futures – For a little scalp as the front month rolls off on Wednesday…

SOLD /VX FEB 17 @ 15.00 (filled near the open Sunday evening)

Re-post from a couple weekends ago. Still going strong in the paper account. I’ll probably give it a shot for real when I assume a short /ES contract at the end of the year. Paper trading account is up over 25 percent since early September. This includes a nice boost it received shorting /VX futures on election night and never having more than about a third of it in the market at any time.

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#Futures I’ve been paper trading this for awhile and it seems to really work well. A low risk way to take advantage of contango all the time…not just during or after volatility spikes.

Looking at spot VIX as well as the futures…there is generally about a 2 point difference ($2000) between spot and front month and between front month and second month. As time passes with no volatility the front month future will gradually decrease to match spot while second month drops a similar amount (contango). If there is a volatility spike, spot will generally be the first to react with front month future lagging behind and second month future lagging even further behind since volatility is generally a short term phenomenon. Once spot exceeds front month we will be approaching a backwardation scenario.

So…with all that in mind, what’s the trade?

I’ve been shorting the front and second month futures against a similar number of short eminis. I keep a stop on the futures positions of 1.5 to 2 points higher and also sell a well out of the money put against the short emini. This allows 3 things to happen.

1. Drastically reduces risk on a volatility spike using the stops while continually cashing in on contango during long periods of low volatility.
2. If stopped out of the short volatility positions, the short /ES should make up for all the loss and probably more.
3. By selling the well out of the money /ES put I can still gradually raise my basis of the short /ES position but still give enough downside protection to make up for more than the volatility stop out loss.

Any thoughts or ideas are welcome. Still haven’t put the trade on in a real account. I probably will on the next decent volatility spike we get.

#Futures I’ve been paper trading this for awhile and it seems to really work well. A low risk way to take advantage of contango all the time…not just during or after volatility spikes.

Looking at spot VIX as well as the futures…there is generally about a 2 point difference ($2000) between spot and front month and between front month and second month. As time passes with no volatility the front month future will gradually decrease to match spot while second month drops a similar amount (contango). If there is a volatility spike, spot will generally be the first to react with front month future lagging behind and second month future lagging even further behind since volatility is generally a short term phenomenon. Once spot exceeds front month we will be approaching a backwardation scenario.

So…with all that in mind, what’s the trade?

I’ve been shorting the front and second month futures against a similar number of short eminis. I keep a stop on the futures positions of 1.5 to 2 points higher and also sell a well out of the money put against the short emini. This allows 3 things to happen.

1. Drastically reduces risk on a volatility spike using the stops while continually cashing in on contango during long periods of low volatility.
2. If stopped out of the short volatility positions, the short /ES should make up for all the loss and probably more.
3. By selling the well out of the money /ES put I can still gradually raise my basis of the short /ES position but still give enough downside protection to make up for more than the volatility stop out loss.

Any thoughts or ideas are welcome. Still haven’t put the trade on in a real account. I probably will on the next decent volatility spike we get.

Happy Thanksgiving…just throwing some “food for thought” out there to chew on over the holiday weekend!

#Futures Currently short a Dec 2160 call sold for 17.00

SOLD /ES DEC 16 2150/1950 Bull Put Spread @ 11.50

This will raise the basis of the short call to 2188.50 and give a downside breakeven of 2121.50 on the put spread. I’ll gladly take the short position at 2188.50 and then sell weekly puts against it. Regrowing the hedge after booking the profits on the last one on election night.