Month: February 2018

I’m trading like a moron, not a monster. $VXX $UVXY $XIV $SVXY $SPY

Several years ago, you couldn’t watch CNBC for any length of time without a commercial for TradeMonster. I opened a TradeMonster account and actually attended a seminar in Newport Beach with Pete Najarian, Dan Fitzpatrick and Guy Adami. It was 2013, I think. 

On these commercials, they implored you to ‘Trade like a Monster’. 

Today, I’m not trading like a monster. I’m trading like a moron. 

In my speculative account, I have held a long position in VXX and UVXY for a year. I wrote covered calls against these positions, week in and week out. Many times, I would only get the proverbial nickels. 

This worked until last week when both the VXX and UVXY simply just exploded. I got caught a bit offsides as I was short calls. For the UVXY I was short the 20 calls that expire next week when my cost basis was around 11.  

Granted, that’s great right? I mean making $9 on each of these is a good, almost 100%, return. But on Monday the 5th, these popped to over 35, 38 in after hours. Its trading around 26 today. 

Late in the day, thinking that this was overdone, I bought a small amount of XIV at 96. It closed on the 5th at 99.  Today its about 6.

After hours, these derivatives went bonkers, bananas, ape sh*t crazy. 

The next day as things corrected a bit, I was able to buy some calendar debit spreads on VXX and UVXY to take advantage of this volatility on the volatility.  

My longs in UVXY and VXX more than offset the loss I have taken in the XIV. On the volatility trade, I am making money. The other names are a different story.  

Yesterday and today, I hear from Jim Cramer that I am a moron for buying the XIV. I think he said only a moron would buy it.  

Well, as they say, you can’t fix stupid. Yesterday I bought some calls in SVXY. Fidelity won’t let me buy the ETF but they will let me buy calls. I bought more today, specifically the June 10 call for 2.58. 

Remember, it was just a week ago that the SVXY was trading about 130. It went out on Monday around 58. 

It would be wonderful if SVXY goes up to 58 or 100, but if it just goes above 12.58, these calls make money. Everything above that is gravy, or icing, you choose the metaphor. 

In addition, I have bought a March Put spread in the VXX, I bought the 35/30 spread for 0.75. 

If volatility comes back to anywhere near normal, these pay off. The SVXY trade will pay off like a lottery ticket. 

But you really shouldn’t listen to me, I’m a moron.  

Me, I’m going to #BTMFD. $SPY $BA $BABA $FB $JPM $NFLX $SCHW $VXX $UVXY

Yesterday, in after-hours trading the SPY traded down to 264.3. Just moments ago, the SPY traded to 263.68. 

I’m no technician, or anything else for that matter but that seems pretty close. It looks like it’s moving back above 264 as I type this at 11:30 Eastern.  

Before I go any further, please note that NOTHING I write here is to be construed as financial advice, before you make any financial decisions you should consult with your financial adviser. You’re a big kid, act like it.  

That being said, I am going to BTMFD, which if you don’t know means “buy the motherf**king dip”. 

Sure, it feels horrible and the wrong thing to do. The VXX has spiked 10% and the UVXY has spiked 20% or more.  

But on the other had consider the following names, all have reported earnings and there seemed to be no apocalypse in their balance sheets. Hell, even Mr Wonderful loved the first one: 

  • BA – down 1.82% 
  • BABA – down 2.34% 
  • FB – down 1.6% 
  • JPM – down 1.67% 
  • NFLX – down 1.85% 
  • SCHW – down 2.4% 

All of these names were down more when the SPY hit that intraday low. Why? Who knows. I think it’s ‘just cuz’. 

Tony Dwyer was on Fast Money at noon and in the afternoon several times over the last few weeks. He argued, every time, that stocks should perform well this year. But just within the last two weeks he thought we would have a pull back because there were no bears, that the sentiment had gotten extended. He argued that when that pull back occurs, one should buy that dip. If I remember he said ‘with both hands’. You can see a tweet from him here.

While I’m not gonna go in with both hands, I am going to get a bit longer at these levels and I’m going to do it with call spreads. 

Just now I bought the July expiration 280 calls for $4.60 and sold the July expiration 289 calls at $2.1 so it cost me $2.5. I can make $9 on each of these contract pairs. I sold the 289 calls instead of the 290 calls as I can buy the 290s as part of a calendar spread in the future. 

Could be wrong, but will pay off at more than 3:1 if I’m right . . . .  

Good Luck today! 

The VXX and other volatility ETFs continue to distort the market

A short note today . . . .

I live in Austin, Texas and I am a product of the University of Texas. I hold season tickets to the Longhorns Men’s Basketball games and tonight, they play K-State. Gotta go root for my team.  

Today as I told my buddy, normally the SVXY trades twice what the VXX does. But, today, at one point mid-morning the VXX was down 3% and the UVXY was up about 5%. Makes ABSOLUTELY no f**king sense. 

Somehow this is all being worked out but I have to believe it is moving the SPY with it, classic tail wagging dog kind of stuff.  

If you haven’t seen it yet, you should read Howard Lindzon’s post. Read yesterday’s post and then read today’s here. 

I’m still a buyer of this dip in many names. Looks like I may have made some good moves today with TSLA. We will see tomorrow. 

The Blowup of the $XIV is massively distorting the options market.

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. 

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.