I have never encountered to trade options on the day an underline symbol changed so this was a pretty interesting experience. Open interests were all zero because it is populated based on data from the prior day. Pricing data for each option chain was sporadic. I felt like I was trading with my eyes closed.
One thing I learned from the VXXB Put credit spread strategy was that, it might seem like a pretty safe strategy, but it was a volatile ride. Time value decay was very minimal since I decided on trading more than 60 days to expiration options. My thinking was there was no way VIX wouldn’t spike within the next 60 days when I opened the positions. I was right, but my exit point was completely wrong. Let me explain.
VXX(B) Credit Spread Execution
As you can see from the table below, the initial position was opened on 4/3/2019. 12.88 was the lowest point for VIX that day. I have had set up a limited order to jump in and because of that drop, it got executed.
I opened another position on 4/8/2019 because VIX had a small drop that day. I had a sense VIX was on the rise and I wanted to capture that.
As I expected, VIX had a mini jump on 4/9/2019. The Net Price dropped down to around 0.53 at one point that day. Yet I did nothing.
After that, VIX started to drop. I should have had just got out when it started dropping. I could have had made a good 2 to 3% return. It ended up going beyond the previous two entry points so to average it down, I decided to enter on 4/12/2019, when it seemed to bottom based on recent VIX levels. VIX was below 12.
How wrong was I….. It turned out it would get even lower on 4/17/2019. I did not thing but just hang on tight. Then Contango kicked in and during all these time, Net Price was as low as 0.9 at one point.
On 5/1/2019, VIX spiked but not high enough for me to get out without a scratch. I decided to wait a day or two, since VIX9D was higher than VIX. I am glad that I did wait. The next day it spiked a bit more in the morning, so I managed to get out at around NET Price 0.6.
In the end, I only managed to make about 1% without considering commissions.
My entry point was good but my exit was bad. I should have had just exit even if it was a small spike.
I should have waited for VIX to drop down at least below 12 before entering.
I will try again once VIX goes down below 12 and this time, will set up a solid exit rule. Looking at the number of VIX mini-spikes (Feb – May VIX day graph below) since February, there were about 7 noticeable spikes. Assuming making 2% profit each round, and only managed to catch 5 of them, that would be a good 10% return in 4 months. An annualized return of 30%. Not too shabby.
What do you think? If you have tried this strategy, would love to hear your thoughts.