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Post by theMist on Jan 13, 2017 22:36:02 GMT -5
And if VXX hits 30 in next two weeks and we go into backwardation (even if for few days)? How would it play out?
Obviously the March contracts that are deep in the money will pay off nicely and short, short calls will get crushed.
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Post by theMist on Jan 13, 2017 22:37:22 GMT -5
Huh, are you using free or premium fscharts? Not sure if it will make a difference
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Post by walnut on Jan 13, 2017 22:54:36 GMT -5
And if VXX hits 30 in next two weeks and we go into backwardation? How would it play out? Obviously the March contracts that are deep in the money will pay off nicely and short, short calls will get crushed. The March calls are offset by the short VXX so that would be a wash. The short calls will only be sold short for a few days just to cover the 20 cents time premium on the March calls that you bought. The point of the hedge is only to take advantage of contango. Not to make money if VXX goes up. But it will not lose money if VXX goes up. Get out of the short calls fast if VXX spikes in those few days. You can come back and resell a weekly when things are better. The only thing that makes money in this deal is the short VXX, if it goes below the 17 strike. The options don't make the profit at all
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Post by walnut on Jan 13, 2017 23:02:59 GMT -5
Take another look at it Rob
sell VXX
Buy mar 17 calls as the deep in the money hedge
sell weekly 22 calls to recover the .20 time premium
Now you have covered the premium of the entire hedge. Your only risk is the 3 or so days you are short the weekly.
You will make money if your VXX shares drops below the 17, which it may or may not. ------------------
It is not easy to find an efficient hedge... this might not seem too sexy but it could pay pretty big actually.
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Post by theMist on Jan 13, 2017 23:08:11 GMT -5
So you still need to watch markets very closely - and what if VXX move happens overnight and VXX opens up 30% higher and keeps running (i.e., the big one) ? Are you sure you won't be losing money? Sounds like you will be doing damage control trying to cover short, get out of short calls real fast. Obviously just short calls. Short position is hedged
Just saw your new response now after I just posted this.
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Post by walnut on Jan 13, 2017 23:10:28 GMT -5
You don't actually have to sell the short weeklies, then consider the cost of this 63 day hedge to be the .20 cents time premium. I'd prefer to collect that back by selling the weekly and being short that for a few days.
You don't have much risk other than that, you will be close to 100% delta real quick, and it started at 90% delta.
Actually other than the weeklies short to recover the 20 cents, there is no risk other than the nearly perfectly hedged difference in deltas.
It is 100% hedged. You will make money if VXX drops far enough.
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Post by walnut on Jan 13, 2017 23:15:01 GMT -5
Not really trying to sell you on this crazy idea, just wanting to make sure you understand it.
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Post by theMist on Jan 13, 2017 23:15:40 GMT -5
Got it. For me, I probably wouldn't worry about recovering premium and wouldn't sell the short weeklies. Thats the only real risk your taking if you do but under current contango it's a win win situation with VXX dropping under 17. I see your point.
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Post by walnut on Jan 13, 2017 23:19:28 GMT -5
Yep that is the questionable part. But I have sold weekly options for years and it seems like an easy way to get a free seat at the casino and play with their money (you are not really, you gotta get that weekly done if only for just a few days).
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Post by theMist on Jan 13, 2017 23:46:09 GMT -5
It seems like a simple hedging strategy that covers cost of premiums.
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Post by huh on Jan 14, 2017 8:27:52 GMT -5
Huh, are you using free or premium fscharts? Not sure if it will make a difference Free
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Post by walnut on Jan 14, 2017 10:22:37 GMT -5
Huh have you been trading lately?
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Post by huh on Jan 14, 2017 17:41:52 GMT -5
Huh have you been trading lately? No. Over the last couple weeks I've been averaging into UVXY, but that's it. And for a couple months before that I really did nothing. Been busy at my friend's business since around Thanksgiving. Going into the holidays I was up nearly 3x's and figured I'd end the year that way unless I saw something exciting, but I didn't see anything I wanted to take a stab at. Pretty good year considering that's no options, no short and no margin. A huge chunk of it was from a few quick long plays in MNKD earlier in the year. This year my plan is to be pretty much short the whole time via UVXY, taking gains at supports and try to play market bounces, or wait to reload short. But you know what they say about the best laid plans.
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Post by theMist on Jan 14, 2017 19:06:35 GMT -5
Huh, are you inferring that by shorting (or reloading short) you will be shorting the S&P via going long UVXY, and when S&P hits support (after selling hard), sell your long UVXY position?
As opposed to shorting UVXY when S&P sells hard (volatility spikes) and when S&P hits support?
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Post by walnut on Jan 14, 2017 20:40:27 GMT -5
I am wondering if either the inauguration, or Dow 20,000 , are going to be some meaningfully bearish events.
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Post by huh on Jan 14, 2017 21:18:21 GMT -5
Huh, are you inferring that by shorting (or reloading short) you will be shorting the S&P via going long UVXY, and when S&P hits support (after selling hard), sell your long UVXY position? As opposed to shorting UVXY when S&P sells hard (volatility spikes) and when S&P hits support? I'll probably do both. UVXY to short the market and SVXY or DUST to long the market. But I do plan on being in UVXY quite a bit (time wise) as I think the market will have a rough year. I went full bull last Feb, neutral (cautious) around August, but full bear for this year. But as I said about plans...
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Post by theMist on Jan 15, 2017 15:29:21 GMT -5
Regarding the above (if we don't get a MAJOR correction and/or 2008-09 type crash), from my favorite band of all time -
"The world weighs on my (theMists) shoulders But what am I to do? You sometimes drive me crazy But I worry about you I know it makes no difference To what you're going through But I see the tip of the iceberg And I worry about you"
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Post by walnut on Jan 15, 2017 15:43:24 GMT -5
Yeah I know, I woke up this morning thinking about Huh being long term UVXY. Actually kind of bothered me haha
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Post by theMist on Jan 15, 2017 15:46:48 GMT -5
Yeah I know, I woke up this morning thinking about Huh being long term UVXY. Actually kind of bothered me haha lol Walnut. Funny video. And obviously, I know you meant Huh being short the markets via being long UVXY for lengths of time.
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Post by theMist on Jan 15, 2017 15:49:54 GMT -5
BTW - I never looked into it. But do you get an alert when someone posts to Fazination? That would be great if can set up.
Enjoying a nice relaxing Sunday but very hard to get mind off markets. I guess its in the blood...
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