Volatility, excuse me I meant <<<< !!VOLATILITY!!>>> $VXX $UVXY $XIV

So that just happened, right?

It wasn’t just what happened in the regular session but WTF happened after hours? 

The XIV, which is the inverse of the VXX fell about 15% in the regular session down from 115 to close at 99. I even bought a little bit in my speculative account at 96, as a hedge, as I am net long options in the VXX and UVXY. 

In after hours, the XIV traded down to 15.43, yes, it lost 84.4% in the after hours session. I generally walk away from the market at the close or otherwise I would have doubled my position in XIV. 

What is going on here? All I can think is that were some big institutions that where making some extra $$ by being short volatility, and that worked until last Friday. It even seemed to be ok today until late this afternoon. 

At some point after hours these guys decided to cover the short which sent the VXX from 43.94 to 56.57, as a frame of reference it closed on Friday at 32.92 and actually traded down late in the morning. The UVXY went from 13.67 to 22.87 at the close today (gain of 66.21%) to add another 6.10 in after hours to end up at 28.97 (another 26%). 

This looks to me like panic buying, just as in the afternoon it looked like panic selling. 

I had planned to talk about some of the trades I made this morning but this focus on volatility has just taken over. 

I am net long both VXX and UVXY but gains on both are going to be capped because we are waaay past my short call positions. 

But this has the real potential to correct right back to where these ETNs were trading this morning, or even where they were tading last Thursday. 

As an aside, last week I noted that in accounts trading a lot of options can appear to blow up when volatility spikes. This morning in my speculative account the total value fell the normal 3-4% after the market opens. This happens because Fidelity assigns the value of an option in the worst possible way depending if you are long or short. If you are long they value the option only at the bid price, which is what you can get if you have to sell it. Likewise, they value short options at the ask price. Overnight they value the option at the last traded price which is more at the midpoint. So, when the market opens and bid/ask prices become available, the total value falls. Today in the late morning it was down about this normal 3-4% but at some point, in the late afternoon it suddenly fell about 35%. It’s not real, and it will be interesting to see what it looks like in the morning. 

Bottom line for me, I think this is an opportunity to get longer. Karen Finerman stated on Fast Money today that she sold half of her S&P puts today and will sell the other half if there is a whoosh down tomorrow. 

I’ll probably do the same. 

What do I do next week with $AAPL $VXX $UVXY $IBB $GOOGL and $SPY?

This week on Options Action, the traders and the ChartMaster talked about a few new names and then reviewed a few old trades. 

AAPL – Dan Nathan is short term bearish on AAPL but really is bullish in the longer term recommending a selling a naked put, specifically the March 16 150 put for about $2 or $200 per contract. 

I like this, but I can’t trade naked short puts in my retirement account with limited margin so I’ll have to do it as a spread. I could sell the 150 put with the Mar 16 expiration date and buy the March 23 140 put option for $70 to create a credit spread of $130.  

I know this is being a bit cute but buying the 140 put that expires one week later gives me a bit more flexibility in managing the trade. No matter if I was to buy the !40 put expiring on Mar 16 or the next week I will be required to put up $1000 in margin requirements for each contract spread.  (the difference between 150 and 140). 

$USO – these guys are bearish and bullish on the dollar. I agree, but I had sold my USO position last year as Fidelity informed me they were going to charge $300 per year to generate K1’s on MLPs starting in 2018 and USO was the only thing that I had that qualified as an MLP. 

However, I do own SCO (short crude oil) which comprises a whopping 0.3% of my speculative portfolio and is down about 37% from purchase. I had bought it as a hedge and will sell it if there is a big drop in the USO. 

$SPY – Mike Khouw recommended a trade in the SPY buying a March 16 275/265 put spread for $265 per contract spread.  

Again, I like this but I think I would use a calendar put spread buying the March 16 275 put for $511 and selling the Feb 16 175 put for about $300. This will cost you about $211. With my trade if on Feb 16 the SPY is above 272 you can roll the short call a total 6 times between then and Mar16. Great trade providing this downturn is short. 

$GOOGL – Mike had a GOOGL call spread he put on last week buying the Feb16 1185/1270 call spread for $2650. 

I put on something different, and I’m glad I did. I bought a butterfly that expires in March, a month later. I bought the 1210/1270/1300 call butterfly for $1,428. Mine will break even at 1225 on March 16. Mike’s will break even at 1211 on Feb 16. I’m glad to have that extra month. I could sell mine now for about $400 but will probably give it some time and maybe sell a credit spread before that date. 

$IBB– Dan had bought a March 120-135 call spread last week for about $225. I am already long quite a few calendar call spreads and a fewer number of calendar puts, so I didn’t add anything. I may add an iron condor tomorrow to extract some extra value from the calendar spreads I have. 

Tomorrow should be interesting! 

Do you have any questions about options or specific names? Send me an email or leave a comment. 

WTF? I thought this market was supposed to only go up? $VXX $UVXY $SPY $AMZN $AAPL $GOOGL

The Selloff

Today it happened, the market sold off. Particularly the $SPY and $QQQ and $DIA took it on the chinny, chin, chin. 

What didn’t go down? $AMZN for one thing, and $NFLX  and $FB only fell about 1.5% when the QQQ was down 2%.  

OSTK, on the other hand, was down almost 16% closing at 56. 

But in my speculative portfolio my holdings in VXX and UVXY were up 13.5% and 27% respectively. 

I hold this stuff in my portfolio just for days like this. I never know when they are coming, but that’s why I hold it. 

Volatility is here to stay, deal with it! 

Turns out the CNBC chyron from a few days ago was correct. At least through today. 

I’m gonna try to detail what I did with my volatiltiy options since three days ago but if this sounds like nails on a chalkboard, please skip down to my SPY section below. 

You’ve been warned! 

Three short days ago I sold covered calls in my holdings of both UVXY (at 15) and VXX (at 30). These were scattered over the Feb 2 (today’s) expiration, Feb 9 and Feb 16. 

The next day volatility retreated and I and I put on one calendar put spread for each 100 shares of each of the two names buying the Mar 16 puts and selling the Feb 16 puts at the 27 level in the VXX and 12 in the UVXY. 

Yesterday as volatility retreated even more I rolled the covered calls up and out, to 31.5 for the VXX and 20 for the UVXY. I also put on some matching call calendars at the 30 level for VXX and 12 for the UVXY.  

Good thing, since these two names closed up on the day VXX closed at 13.76 and UVXY closed at 32.92. 

I’m happy where this ended out. Now on Feb 16 I have both some (virtual) strangles (in the VXX) and straddles (in the UVXY). 

Buying the SPY

Is this the start of the big decline, or just a minor pullback? I don’t know, it might be but my feeling is that this is temporary. When earnings keep coming in hot, and projections are for increasing revenues, it is hard to imagine this will be a prolonged pullback. Could it go down another 3%, 5% or 7% or more? No problem. 

But besides squaring up all my expiring trades today, I also bought small amounts of SPY and a micro amount of TLT.  

I may add to my XIV if it has another day like today and I’m looking to sell some put credit spreads in the SPY and close out some of my long put spreads in the same (which is really the same thing – selling a higher price put option and buying a lower price put option, its just with the debit spreads I already own the spread) 


Good luck next week ! Check back this weekend for some updates. 

Political Investing & Another Day of trading $UVXY $VXX $XIV

Did you trade today based on anything that President Trump said last night? Did you trade today based on anything that he didn’t say? Are you worried that the market might tank if Robert Mueller indicts someone new? Are you trading on politics?

As much as I would like to say that I am free of bias, that is, my market view is agnostic as to politics, I’m afraid I can’t be sure. But what I am sure of is that I strive to be. I have political views, just like everyone. And I have a very strong opinion about what I think should happen. But I learned an important lesson in the 2016 election. 

I went into the 2016 Presidential election thinking the odds that Clinton would win at 2:1. Based on that I thought the market would continue its steady climb of the last seven years. Consensus was that If Trump won, the market would correct about 20%. I was hedged a bit, but decidedly long. 

We all know what happened. I was shocked when I got up the next morning. Overnight the S&P futures were limit down but had rebounded slightly by the morning. I did buy some put spreads when the market opened, but I did not sell the longs. 

Suffice it to say that I had done the right thing, but for an entirely wrong reason. I had thought the wheels would come off the economic wagon if Trump was elected. That, simply, was just plain wrong. 

As traders we are all trying to predict the future. We look at fundamentals. We listen to ‘The ChartMaster’. We have hunches. We believe, we have faith. We love Apple (and Tesla etc) and now we love Boeing. We create a story about why this happened and why that will happen next week, next month, next year.  

But what I want to emphasize tonight is we should not let our political biases influence that equation. In particular, you should not let your love of Trump (or the Republicans, the Democrats etc) or your disgust of Trump (or the Republicans, the Democrats etc) influence how you invest your money. You have only one goal in mind here, to make that money grow as quickly as possible. So save that political argument for some other forum besides StockTwits. I have a hard enough time keeping my emotions in check about AAPL or FB or AMZN or TSLA or . . . . .  

I got two examples from CNBC: 

Joe Kiernan has become much more of a conservative mouthpiece over the years. He wasn’t always this way, but it happens. When Obama was President he was always espousing how 44 was getting ready to regulate us into a recession. Obama was President for 8 years and he presided over an economic expansion. I was trading in 2008 and 2009. I was truly concerned we could enter a depression. Congress wouldn’t pass stimulus bills saying the deficit would explode. The Affordable Care Act was supposed to kill jobs, but that didn’t happen. If I believed Joe, I would have bought nothing but S&P puts. And I would have watched my portfolio slowly crumble while the rest of the world made money. 

Today, Dan Nathan on Fast Money and Options Action is our resident bear. He strongly disapproves of the Trump Administration and has stated several times that this rally we have had since the 2016 election just hast to come to an end. He thinks there is a good chance of Trump getting in trouble. I remember when there was time on Options Action where his trade was always a put spread in SPY or IWM or QQQ. 

Both Joe and Dan have been wrong. I’ll still listen to them, but if I detect their recommendation is based on love of Trump (Joe) or disgust of Trump (Dan) well, I will give their opinion much less weight. 

Volatility is back, deal with it! 

That was the chyron on Fast Money this afternoon. 

Yesterday I traded options in UVXY and VXX and bought a small bit of XIV. In the morning, when volatility spiked I sold covered calls in UVXY and VXX. 

Later that day I bought calendar put spreads in both names with the strike price of 27 for VXX and 12 for UVXY. 

Today as volatility pulled back, I rolled a few of those covered calls up and out and put on some call calendars at 30 for the VXX and 12, again for the UVXY. 

All of this has sent my speculative account up about 1% yesterday and 1% today. 

Chris Harvey of Wells Fargo thinks its back . . . . but we will see. I think it may whimper back down and we consolidate in the S&P. 

Volatility Persistent through the Trading Day $UVXY $VXX $XIV Jan 30 2018

As I said in an earlier post, many new traders woke up to an unusual volatility spike. Those of us doing this for more than a year remember when this happened on a regular basis. 


So far today: 

  • $SPY down to 281.22 but bounced up to around 282 
  • $VXX spiked up to over 31.80 but has settled down to about 30.75 at the moment or up about 3.35% on the day 
  • $XIV is the inverse of the $VXX, and $UVXY is double the $VXX and have moved accordingly.  
  • I bought a teensy amount of $XIV at 121, haven’t added, haven’t sold. 
  • I sold some covered calls against both the $UVXY and the $VXX.  These are spread out over the next three expirations Feb 2, Feb 9 and Feb 16. 

But here’s what I did this afternoon: 

I bought two calendar put spreads, one in the UVXY and the other in the VXX. 

For each 100 shares of equity in these names I bought the same number of puts with a strike price of 27 for the VXX and a strike price of 12 in the UVXY. 

I sold and equal number of puts with the same strike prices in the two names (27 and 12) that expire on Feb 16. 

I paid $120 for each UVXY put spread and $133 for each VXX put spread. 

Since all the long, covered calls expire by Feb 16 I figure I can’t lose. These names can’t be both above and below the two strike prices on Feb 16, right? 

Buying puts on volatility names has frequently been a winner for me in the past. When volatility is high is usually when you can get quite a good price for the near dated short option and then as volatility falls these short options peter out pretty quickly.