Closed VXX(B) Credit Spread on the Day to Say "Good Bye VXXB, Hello VXX Again"

May 2nd, 2019. On the day VXXB was changed back to VXX, I managed to close the PUT credit spread VXXB positions that I opened in April.

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.

Conclusion

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.

Author
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Tony

I have been trading options since 2010 and have been testing and experimenting with various trading styles. Fundamental Analysis based, Technical Analysis based, Trend Following, Day Trading, Swing Trading, etc.

My primary option trading strategies incorporate volatility and I am constantly experimenting with various trading strategies to improve my PNL.

I hold two Master’s degrees (MSc and MBA) with career experience as a cancer research scientist and a digital marketer.