I am writing this post to document the latest VIX ETN (Electronic Traded Note) trades, as I mentioned in this previous blog post that I would be focusing on moving forward.
In case if you are not familiar with VIX ETNs, VXX and UVXY are the famous ones.
VIX spiked in early September so multiple VXX option trades were placed on September 6 and 7.
The chart below shows VIX spiked briefly above 15 on Sep 7 then continued to decline.
What positions were opened?
The opened positions were all bear Put spreads as shown below, each with at least about 20% ROI at expiration. A non-relevant position and position size are blurred since they are irrelevant for the conversation. In case if you are wondering why bear Put spreads were used instead of bear Call spreads, I had a really bad experience with it earlier this year. I understand when volatility is high, selling options makes more sense than buying, but selling deep in the money Call at times can get assignment. I will get into more details on another blog post about that.
Deeper in the money strikes were selected with Oct expiration position. The thinking was since there is not too much time until expiration, if VIX spikes up, there won’t be enough time to recover. By choosing deeper in the money for the short leg (34), it should minimize the possibility of losing.
Open interests were the primary driver to select Dec expiration positions. Since there is plenty of time for contango to take place, placing the short leg closer to the spot price at 30 and 32 (also another way to look at it is price with around -0.5 delta) is not an issue.
As for Jan expiration positions, my thought was to get out before the expiration, so by choosing the short leg strike price little deeper in the money (33 and 35), hopefully as contango happens and price keep dropping, I would be able to close the position earlier.
Ideally, I would like to get out at least at around 10% ROI for each one of them but it really depends on the market condition.
VIX spiked a little on September 17 but I am holding on
September 19 is the VIX future expiration date, so contango should be higher than usual this week unless VIX futures go into backwardation.
It’s strange that the market does not seem to care about the Trade war that’s going on right now and keep going high. VIX is hovering around 13 today and S&P is close to 20 points gain.
Let’s see what happens but as of now, I am holding on to these positions.