This is the most interesting day I have seen in the markets as an active options trader.
First, the $XIV blew up. I just typed ‘first’ but really it’s the whole story today.
There’s a great blog post by Howard Lindzon (read it here) that does a far better job of describing it than I ever could. However, I have some experience with XIV, UVXY and VXX if you have been reading my blog over the last week.
Basically, the XIV was an inverse volatility ETP (exchange traded product). It’s issuer Credit Suisse froze it and plans to liquidate. How it liquidates is to buy volatility to cover it. This explains why the counterpart, the VXX, is up today but all over the place. Right now, its in the low 50s, after hours last night it was over 62. Yesterday morning it was trading about 32.
As I understand it, listening to the talking heads on CNBC, it is also liquidating by selling SPY which may explain why it is hard for the SPY to get traction when stocks are higher.
And here’s what is really fascinating, my speculative portfolio comprised of about 27 names and their options looks horrible but when you look out, the call options that expire this week or next, are elevated even when far out of the money. Here’s some examples:
- NVDA – trading about 217 and the 235 call that expires this weekend last traded at 3.62
- TSLA – trading about 330 and the 355 call that expires this Friday trades about 2.8
- SPY – I was put some shares this morning and instead of selling them I decided to sell some covered calls against them. When the SPY was trading about 264 I sold the Feb14 273 calls for 3.30
Since both the accounts that I trade actively are comprised mostly of options, my value looks HORRIBLE but I’m not panicking and looking to make the most of this spike in volatility.
Fortunately I was long both $UVXY and $VXX but I was short covered calls on them so my profits are capped. But I’m gonna let them ride and see what happens prior to expiration this Friday and next.