Vxx option trading strategies
Follow Terry's Tips on Twitter. Like Terry's Tips on Facebook. Watch Terry's Tips on YouTube. But I will share a trade I made on this ETP this morning, and my thinking behind this trade. The best way to explain how SVXY works might be to explain that it is the inverse of VXX, the ETP that some people buy when they fear that the market is about to crash. Many articles have been published extolling the virtues of VXX as the ideal protection against a setback in option market. Strategies the market falls, volatility VIX most always rises, and when VIX rises, VXX almost always does as well. It is not uncommon for VXX to double in value in a very short time when the market corrects. The only problem with VXX is that in the long run, it is just about the worst equity that you could imagine buying. About every year and a half, a reverse 1-for-4 reverse split must be engineered on VXX to keep the price high enough to bother with buying. The last time this happened was in August Clearly, you would vxx buy VXX if you felt strongly that the market was about to implode. Most of the time, we prefer to own the inverse of VXX. When VIX rose and SVXY fell last week, something interesting happened. Implied volatility IV of the SVXY options skyrocketed to nearly double what it was a month ago. I think that these high option prices will not exist for too long, and would like to sell some at this time. Rather than selling either or both puts and calls naked inviting the possibility of unlimited lossa good way of selling high-IV options is through an iron condor spread. As with any investment, you would only commit money that you can truly afford to lose. I like my chances here, and I committed an amount that would not change my style of living if I lost it. CallsCredit SpreadsETFETPimplied volatilityMonthly OptionsPortfolioProfitprofitsPutsRiskStocks option. On Wednesday of this week, a VIX spread I recommended for paying subscribers expired after only 3 weeks of existence. Most of the time, VIX fluctuates between 12 and 14, but every once in a while, it spikes much higher. Just before the election that took place on November 8, VIX soared to I recommended to my paying subscribers to place a bet that VIX would fall back below 15 when the option series that expired on November 23 came around. Here are the exact words I wrote in my November 5 Saturday Report:. However, you can buy and sell puts and calls on VIX, and execute spreads just as long as both long and short sides of the spread are in the same expiration series. You are not allowed to buy calendar or diagonal spreads with VIX options since each expiration series is a distinct series not connected to other series. If you could buy calendars, the prices would look exceptional. Vertical spreads are fair game, however, and make interesting plays if you have a feel for which way you think volatility is headed. This week, when VIX was over 22, we sent out a special trade idea based on the likelihood that once the election is over, VIX might retreat to the lower range where it has hung out most of the time recently. This is the trade we suggested:. It worked out exactly as we expected. VIX fell to below 13 and both puts expired worthless on Wednesday. How sweet it is. Many subscribers have vxx to us that they have done just that. As a post Thanksgiving special, we are offering one of the lowest subscription prices that we have ever offered — our full package, including several valuable case study reports, my White Paperwhich explains my favorite option strategies in detail, and shows you exactly how to carry them out on your own, a day options tutorial program which will give you a solid background on option trading, and three months of our Saturday Report s full of tradable option ideas. If you are ready to commit for a longer time period, you can save even more with our half-price offer on our Premium service for an entire year. This special offer includes everything trading our basic service, and in addition, real-time trade alerts and full access to all of our portfolios so that you can Auto-Trade or follow any or all of them. We have several levels of our Premium service, but this is the maximum level since it includes full access to all nine portfolios which are available for Auto-Trade. Use trading Special Code MAX16P. This is a time-limited offer. You must order by midnight MondayNovember 28th, This is the perfect time to give you and your family the perfect Holiday Season treat that is designed to deliver higher financial returns for the rest of your investing life. It may take you a little homework, but I am sure you will end up thinking it was well worth the investment. Do it today, before you forget and lose out. Trading offer expires at midnight November 28th, Calendar SpreadsCallsdiagonal spreadsimplied volatilityMonthly OptionsPortfolioProfitprofitsPutsRiskStocks vs. Every once in a while, market volatility soars. I hope you can learn something from this latest way to benefit from an elevated volatility level in the market. When VIX was over 22, we sent out a special trade idea based on the likelihood that once the election is over, VIX might retreat. For the last few years, the most popular range for VIX to hang out has been in the area. If you look at a chart of VIX, you will see that it has moved above 20 on only 7 occasions over the past three years, and the great majority of time, it quickly retreated to a much lower level. Only once did it remain over 20 for more than a couple of weeks or so. Back inVIX moved up to astronomical levels and stayed there for several months, but if you recall those days, with the implosion of Lehman Bros. This vxx around, it seemed like the most fearful consideration was the American election, and specifically that Donald Trump might win and market uncertainty would surely soar even further. This does not feel like the cataclysmic possibilities that we were facing in This is the trade we suggested, based on our assumption that Donald Trump would probably not prevail and not much different would happen out of Washington going forward:. Maybe 3 weeks was not a long enough time to expect VIX to plummet back to The price and potential gain would be about the same I have sold this same spread in that series in my personal account as well. Since we placed the above spreads a week ago, VIX has fallen strategies 23 to a little over 18 today apparently when the FBI exonerated Hillary, it looked less likely that Trump would win. We like our vxx here. Some subscribers are taking their gains today, just in case Mr. I am personally holding out for the bigger potential gain. This week we will continue our discussion of a popular option spread — the calendar spread which is also called a time spread or horizontal spread. We will check out the feasibility of buying spreads at different strike prices in an effort to reduce risk. Here is what the risk profile graph looks like for the three spreads:. Note that the break-even range is almost exactly the same with the three spreads. Presumably, you are trading calendars on a stock you believe is headed higher. You might choose to buy an at-the-money calendar and a second one at a higher strike. If you are bullish on the stock, this seems to be a better way to go. The best thing about this choice of two spreads is that the maximum gain can be achieved across a 5-point range rather than being available at only one precise price point. Another strategy might be to buy the calendar spread, and then wait to see which way the stock moves, and then buy another calendar in that direction. The big risk with this strategy is that the stock might whipsaw. As usual, there are no easy ways to make sure gains in this world. The best bet seems to be to take a position that the stock is headed in one particular direction usually up unless you are trading on some ETP that is destined to go down, like VXXand combine an at-the-money spread with one at a higher strike price. Most months you should be making a significant gain if your stock behaves as you expect, and that gain can materialize over a nice range of possible prices. Some time ago, I noticed that the value of some of our portfolios was changing after the market for the underlying stock had closed. Clearly, the value of the options was changing after the 4: I did a Google search to find a list of options that traded after hours, and came up pretty empty. But now I have found the list, and will share it with you just in case strategies want to play for an extra 15 minutes after the close of trading each day. List of Options Which Trade After Hours Until 4: Since option values are derived from the price of the underlying stock or ETP Exchange Traded Productonce the underlying stops trading, there should be no reason for options to continue trading. However, more and more underlyings are now being traded in after-hours, and for a very few, the options continue trading as well, at least until 4: Options for the following symbols trade an extra 15 minutes after the close of trading — DBA, DBB, DBC, DBO, DIA, EFA, EEM, GAZ, IWM, IWN, IWO, IWV, JJC, KBE, KRE, MDY, MLPN, MOO, NDX, OEF, OIL, QQQ, SLX, SPY, SVXY, UNG, UUP, UVXY, VIIX, VIXY, VXX, VXZ, XHB, XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY, XME, XRT. Most of these symbols are often erroneously called ETFs Exchange Traded Funds. While many are ETFs, many are not — the popular volatility-related market-crash-protection vehicle — VXX is actually an ETN Exchange Traded Note. A better way of referring to this list is option call them Exchange Traded Products ETPs. Caution should be used when trading in these options after 4: From my experience, many market makers exit the floor exactly at 4: Consequently, the bid-ask ranges of options tend to expand considerably. This means that you are less likely to be able to get decent prices when you trade after 4: Sometimes it might be necessary, however, if you feel you are more exposed to a gap opening the next day than you would like to be. Market crashes do come along every once in a while, and we are eight years away from the last one in What will happen to your nest egg if it happens again this year? How To Protect Yourself Against a Market Crash With Options. The magnitude of his bet against SPY is phenomenal, essentially million shares short. Of course, he almost always deals in stratospheric numbers, but the size of this bet indicates that he feels pretty strongly about this one. So what can you do to protect yourself against a big tumble in the market? It is based on the well-known fact that when the market crashes, volatility soars, and when volatility soars, the Exchange Traded Product ETP called VXX soars along with it. Some people buy VXX as market crash insurance or its steroid-like cousin, UVXY. Over the long run, VXX has been a horrible investment, however, possibly the worst thing you could have done with your money over the past six years. It has engineered 1-for-4 reverse splits three times to make the price worth bothering to trade. An option strategy can be set up that allows you to own the equivalent of VXX while not subjecting you to the long-run inevitable downward trend. When volatility does pick up, VXX soars. While it is a bad long-term investment, if your timing is right, you might pick up a windfall. Our options strategy is designed to achieve the potential upside windfall while avoiding the long-term prospects you face by merely buying the ETP. Our new portfolio will buy VXX 20Jan17 15 calls and sell fewer contracts in short-term calls. Sufficient short-term premium will be collected from selling the short term calls to cover the decay on the long calls and a little bit more. The entire amount will not be used at the outset, but rather be held in cash in case it might be needed to cover a maintenance call in case the market moves higher. Here is what the risk profile graph looks like with those positions as of June 18th after the short calls expire: VXX Better Bear Risk Profile Graph May You can see that the portfolio will make gains no matter how high VXX might go. If it falls that far, we might sell call or two at the 14 strike and incur a maintenance requirement which would be partially offset by the amount we collected from selling the call s. A trade like this would option or eliminate a loss if the ETP continues to fall, and it might have to be repeated if VXX continues even lower. At some point, some long calls might need to be rolled down to a lower strike to eliminate maintenance requirements that come along when you sell a call at a lower strike than the long call that covers it. You probably should not attempt to set up and carry out this strategy unless you are familiar with options trading as it is admittedly a little complicated. Every investment portfolio should vxx a little downside insurance protection. We believe that options offer the best form for that kind of insurance because it might be possible to make a profit at the same time as providing market crash insurance. As with all forms of strategies, you should not be committing money that you truly cannot afford to lose. Two weeks ago, LinkedIn LNKD issued poor guidance while at the same time announced higher than expected earnings. Investors clobbered the stock, focusing on the guidance rather than the earnings. At the same time, as is often the case, another company in the same industry, Facebook FB was also traded down. Today, a similar thing took place. Walmart WMT announced earnings which narrowly beat estimates, but missed top line revenue by a bit. However, they projected that next quarterly earnings starting now would be flat. The stock fell 4. Costco COST is also a retailer, and many investors believe that as Walmart goes, so will Costco. This how the lemmings do it, time and time again. That seemed to be an over-reaction to me. COST is a much different company than WMT. COST is adding on new stores every month while WMT is in the process of closing stores, for example. WMT has a much greater international exposure than COST, and the strong dollar is hurting them far more. I expect cooler heads will soon prevail and COST will recover. This is called selling a bull put credit spread. Any ending price above this will be profitable and any ending price below this will result in a loss. Higher risk and higher reward. The stock needs to move a bit higher for you to make the maximum gain. I feel more comfortable knowing it can fall a little and still give me a seriously nice gain for a single month. By the way, these trades can be made in an IRA if you have a broker like thinkorswim which allows options spread trading in an IRA. If you make either of these trades, please be sure you do it with money you can truly afford to lose. Options are leveraged instruments and often have high-percentage gains and losses. With spreads like the above, at least you know precisely what the maximum loss could be. Auto-TradeBullish Options strategiesCallsCredit SpreadsETPMonthly OptionsPortfolioProfitprofitsPutsRiskStocks vs. It was the 10th time that it moved over 20 in the last 3 years. In 9 of those 10 occasions, VIX fell back below 20 in less than 10 days, and in the other instance August 21,it took 40 days to fall back below Last week was a bad one for the market. After all, does the Fed want to be the bad guys who are responsible for the worst yearly market in 7 years? Would raising rates be a good idea at a time when the market is lower than it was a year ago? We should remember trading the Fed is composed of big banks who make greater profits when interest rates are higher, so raising rates may seem to be self-serving. I have no idea if the Fed will raise rates in two days as Janet Yellen has indicated they plan to. If they do, I suspect it will be a small start, maybe 0. In either case, no rate increase or a small one, the big change will be that the uncertainty over the timing of the increase will cease strategies exist. Either choice should result in a higher market and more importantly for option traders, a lower VIX. As I have written about extensively, an Exchange Traded Product ETP called SVXY varies inversely with VIX. When VIX moves higher, SVXY crashes, and vice versa. When VIX trading back below 20, as it has done every single time it rose over 20 for the past 3 years, SVXY will be trading higher than it is today. You will not have to make a trade at that time, but just wait until the end of the day to see the maintenance requirement disappear. Of course, there are other ways you could make a similar bet that SVXY will head higher as soon as some of the market uncertainty dissipates. You could sell the same spread at any weekly option series for the next 5 weeks and receive approximately the same credit price. Actually, VIX does not have to fall for SVXY to at least remain flat. In this trade, you would buy Jan 45 puts and sell Jan 50 puts. The last time that VIX closed above 20 was on November 13, I think this is an opportune time to make a profitable trade which is essentially a bet that the current market uncertainty will be temporary, and might be over as soon as Wednesday when the Fed makes its decision concerning interest rates. Of course, a serious terrorist action or other calamity might spook markets as well, and the uncertainty will continue. However, I feel pretty good about the two investments outlined above, and will be making them today, trading after you receive this letter. Not bad by any standards. It is a derivative of a derivative of a derivative which almost no one fully understands, apparently even the Nobel Prize winners who carried out Long-Term Capital a few years back. Even though it is pure gobbledygook for most of us, this ETP trades just like vxx stock. You can buy it and hope it goes up or sell it short and hope it goes down. Best of all, for options nuts like me, you can trade options on it. That has to option the dog of all dog instruments that you could possible buy over that strategies period if you know of a worse one, please let me know. Since then, it has done relatively better, only falling in about half over almost a two-year span. There are some problems with selling it short, however. If option straight-out buy puts or calls, every day the underlying stock or ETP stays flat, you lose money. I do like to buy and sell both puts and calls as part of a spread, however. That is another story altogether. So what else should you know about this ETP? First, it is called VXX. You can find a host of articles written about it check out Seeking Alpha which say it is the best thing to buy for the short term if you want protection trading a market crash. While that might be true, are you really smart enough to find a spot on the 6-year chart when you could have bought it and then figured out the perfect time to sell as well? The great majority of times you would have made your purchase, you would have surely regretted it unless you were extremely lucky in picking the right day both to buy and sell. One of the rare times when it would have been a good idea to buy VXX was on August 10,just over a month ago. Each day, Barclays buys one-month-out futures on VIX in hopes that the market fears will grow and VIX will move higher. Every day, Barclays sells VIX futures it bought a month ago at the current spot price of VIX. If VIX option moved higher than the month-ago futures price, a profit is made. It is a condition called contango. That percentage is how much higher the one-month futures are than the current value of VIX, and is a rough approximation of how much VXX should fall each month. However, every once in a while, the market gets very worried, and contango disappears. The last month has been one of those times. People seem to be concerned that China and the rest of the world is coming on hard times, and our stock markets will be trading because the Fed is about to raise interest rates. The stock market has taken a big tumble and market volatility has soared. This has caused the current value of VIX to become vxx When the futures are less than the spot price of VIX, it is a condition called back-wardation. Right now, backwardation is in effect, This is an exceptionally long time for backwardation to continue to exist. At some point, investors will come to the realization that the financial world is not about to implode, and that things will pretty much chug along as they have in the past. When that happens, market volatility will fall back to historical levels. For most of the past two or three years, VIX has traded in the 12 — 14 range, about half of where it is right now. When fears subside, as they inevitably will, VIX will fall, the futures will be greater than the current price of VIX, and contango will return. Even more significant, when VIX falls to 12 or 14 and Barclays is selling for VXX at that price, VXX will lose out big-time because a month ago, it bought futures at So VXX will inevitably continue its downward trend. So how can you make money on VXX with options? When it falls, VXX will tumble, contango will return, and VXX will face new headwinds going forward once again. It seems like a pretty good bet to me. This spread is called selling a bearish call credit vertical spread. Lowest Subscription Price Ever: As a back-to-school special, we are offering the strategies subscription price than we have ever offered — our full package, including all the free reports, my White Paper, which explains my favorite option strategies in detail, and shows you exactly how to option them out on your own, a day options tutorial program which will give you a solid background on option trading, and two months of our weekly newsletter full of tradable option ideas. Auto-TradeBearish Options Strategies strategies, Bullish Options strategiesCalendar SpreadsCallsCredit SpreadsETFimplied volatilityLEAPSMonthly OptionsOptions Tutorial ProgramPortfolioProfitprofitsPutsRiskStocks vs. Market volatility continues to be high, and the one thing we know from history is that while volatility spikes are quite common, markets eventually settle down. After enduring a certain amount of psychic pain, investors remember that that the world will probably continue to move along pretty much as it has in the past, and market fears will subside. While this temporary period of high volatility continues to exist, there are some trades to be made that promise extremely high returns in the next few months. I would like to discuss one today, a trade I just executed in my own personal account so I know it is possible to place. As we have been discussing for several weeks, VIX, the so-called Fear Index, continues to be over This compares to the 12 — 14 level where it has hung out for the large part of the past two years. When VIX eventually falls, one thing we know is that SVXY, the ETP that moves in the opposite direction as VIX, will move higher. Because of the persistence of contango, SVXY is destined to move higher even if VIX stays flat. Note that while the general trend for SVXY vxx to the upside, every once in a while it takes a big drop. The stock recovers quickly once fears subside. The recent drop is by far the largest one in the history of SVXY. I believe it is destined to move quite a bit higher, and soon. So how much do I have to put up to place this trade? Since I am quite certain that it is headed higher, not lower, a drop of this magnitude seems strategies unlikely to me. Where else can you make this kind of return for as little risk as this trade entails? Of course, as with all investments, you should only risk what you can afford to lose. But I believe the likelihood of losing on this investment is extremely low. The stock is trading to move higher, not lower, as soon as the current turbulent market settles down. If you wanted to take vxx little more risk, you might buy the 45 put and sell a 50 put in the Jan series. You would be betting that the stock manages to move a little higher over the next 4 months. I have also placed this spread trade in my personal account and my charitable trust account as well. This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways and sometimes the woods. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA. I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. Neither tastyworks nor any of its affiliated companies is responsible for the privacy practices of Marketing Agent or this website. Options are not suitable for all investors as the special risks inherent to options trading my expose investors to potentially rapid and substantial losses. Please read Characteristics and Risks of Standardized Options before investing in options. Vermont website design, graphic design, and web hosting provided by Vermont Design Works. This is the spread I executed this morning: Here are the exact words I wrote in my November 5 Saturday Report: This is the trade we suggested: And now for the special Black Friday — Cyber Monday special offer. This is the trade we suggested, based on our assumption that Donald Trump would probably not prevail and not much different would happen out of Washington going forward: Calendar Spreads Tweak 1 Thursday, September 1st, This week we will continue our discussion of a popular option spread — the calendar spread which is also called a time spread or horizontal spread. Face book Risk Profile May Terry List of Options Which Trade After Hours Until 4: These might be the starting positions: Here is what I did for each contract: This could be the best investment decision you ever make — an investment in yourself. Option Historical Chart Search Blog Search for: Stock Options Straddles Strangles Terry's Tips thinkorswim VIX Volatility VXX Weekly Options Weekly vs. Monthly Options William Tell. Success Stories I have been trading the equity markets with many different strategies for over 40 years.
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