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Nathan Buehler
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You can follow me on Twitter and StockTwits, just search Nathan Buehler. I have always had a passion for finance and investing. I enjoy and appreciate engaging with like minded individuals that inspire me to think beyond what is generally accepted. My investment experience spans almost ten... More
  • My UVXY Options Strategy 15 comments
    Jul 15, 2014 3:42 PM | about stocks: UVXY, SVXY, VXX, TVIX, XIV

    Welcome to my first InstaBlog post. I received a ton of feedback wanting more information on my options strategy for UVXY.

    Before we begin I want to point out that purchasing SVXY is a suitable alternative to this strategy. To each his own and I prefer using UVXY options in the current environment.

    I have two different strategies:

    Selling calls and purchasing puts (really the same strategy when you think about it).

    Selling calls (naked)

    This requires a higher level options clearance and a margin account.

    It is important to not margin yourself out in these trades in case it ends up not going your way.

    Strategy: Once volatility has spiked and is in decline, sell an at the money UVXY call. At the money calls provide the biggest time value decay benefits. I also sell the longest range call, usually at least a year left until expiration. The further out the option is, the more extrinsic value it has.

    Once UVXY has pulled back about 20-30% I will liquidate my position and wait for the next event.

    Buying puts

    Buying puts give you the flexibility of not being margined out. Essentially the most you can lose is 100% where there is a possibility of losing more than 100% with selling calls.

    My strategy for buying puts is a 3 prong approach.

    I again wait until after volatility has spiked and is in decline.

    1. Use weekly options - 20%

    2. Use monthly options - 60%

    3. Use quarterly options - 20%

    Above you can see the allocation. I never purchase Puts more than 90 days out for UVXY. The reason is I plan on exiting the position in 15-40 days. I collect that premium on the way down and I liquidate my position and wait for another opportunity.


    Timing for this strategy is essential. I would focus on contango and backwardation. VIX Futures will enter backwardation on a spike in volatility. As the % backwardation begins to decrease this should signal to you that the VIX futures are starting to decline. Once futures enter contango this should be a confirmation that the event, economic condition, situation, that caused it to spike is beginning to calm down.

    It is very important to keep track of economic and political events during these spikes. It is up to you, the individual investor, to predict moves in the market based on the data you have available. There is no guaranteed strategy for timing spikes in the VIX. I am more conservative and wait for the situation to play itself out. Others are not and try and time the peak. This is a dangerous strategy.

    I have a good article on how UVXY and SVXY would have reacted in 2008 and 2011. It would be helpful for insight on timing. Even though UVXY went up over 1000% during 2008, it still would have ended up negative less than one year later.

    Stop Loss

    To prevent unexpected capital erosion I use a stop loss instead of a hedge.


    VIX Trading makes up 20-30% of my investment portfolio. I do not recommend using these strategies with 100% of your portfolio.

    With my age I am fine with taking higher risks. However, as I progress I take the gains made trading the VIX and allocate it to longer-term investments. Thus lowering the portfolio percentage.

    I hope you found these strategies helpful. Last year they yielded me an 86% return. I only make these trades 3-5 times per year because I wait for strategic opportunities based on the above timing.

    It is important to understand what you are doing before entering these trades. I recommend a practice account or several years of research before making this a permanent investing strategy.

    Please follow me on Seeking Alpha here.

    View my YouTube investing videos here.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: If this article leaves you with questions then you are not yet ready to trade VIX ETPs. Make sure you do extensive research on timing, economic conditions, outlook, and risk before entering into any of these strategies.

    Stocks: UVXY, SVXY, VXX, TVIX, XIV
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Comments (15)
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  • thetortoise
    , contributor
    Comments (102) | Send Message
    Glad to see you are doing the instablog posts so you can write more in depth about the options strategies. One thing I wonder about is using UVXY options instead of VXX. It would seem that the additional volatility of UVXY should be built into the options price? If so, VXX would seem to be the more liquid option with lower bid/ask spreads? I wonder about this too with SVXY which has sizable spreads. Instead of buying a call in SVXY, why not buy a put in VXX?


    I like the idea of using various expiration dates, which is something I have been considering as well as I wait and wait for the next event.


    Another thing I keep wondering about is what advantage selling calls would have (in VXX/UVXY), rather than buying puts? It would seem that this strategy exposes you to incredible risk in the case of a black swan, whereas buying a put in VXX limits your losses to the option cost as you describe above. I'm appreciating your continued series on volatility ETP's - well done!
    16 Jul 2014, 12:14 AM Reply Like
  • Nathan Buehler
    , contributor
    Comments (1071) | Send Message
    Author’s reply » Thank you for your comment! You could certainly use VXX options with this strategy.


    The bid/ask spread is something I do monitor and it changes throughout the day with UVXY options. I have learned to be proactive and monitor options prices for days before I enter into any positions.


    Selling calls is much riskier than purchasing the puts, I agree. I personally go with the puts now. However, last year I went with the calls. It just depends on my economic outlook at the time.
    16 Jul 2014, 12:22 AM Reply Like
  • User 55949
    , contributor
    Comments (8) | Send Message
    Thanks so much for all your great articles and this blog!


    You talk about buying puts but you then mention SELLING?
    "My strategy for selling puts is a 3 prong approach." Is this a typo?
    21 Jul 2014, 10:44 AM Reply Like
  • Nathan Buehler
    , contributor
    Comments (1071) | Send Message
    Author’s reply » It is, thank you. I have updated the article. Thanks for reading!
    21 Jul 2014, 02:01 PM Reply Like
  • Surfer22
    , contributor
    Comments (12) | Send Message
    Hi Nathan,


    You are on fire with your articles on VIX, many thanks for sharing your knowledge with us.


    - Could you please suggest what sort of 'Delta' you usually go for while buying Put options; how much ITM ATM OTM?


    - What is your exit strategy with these put options that you purchase?


    - I have got XIV sitting in my portfolio, please suggest what % you are using for setting up trailing/stop losses to manage risk?


    25 Jul 2014, 02:22 AM Reply Like
  • Nathan Buehler
    , contributor
    Comments (1071) | Send Message
    Author’s reply » I don't pay too much attention to Delta because usually a substantial drop will be rated unlikely.


    Almost everything will be ATM or OTM with put options and very deep ITM with selling calls.


    My target is a 20-40% return before exiting the position.


    My stop loss is usually around 25%.


    Thank you for reading!
    25 Jul 2014, 03:45 AM Reply Like
  • User 20541001
    , contributor
    Comments (2) | Send Message
    Hi Nathan,
    Many thanks for your great articles.
    Could you please suggest what strike put options do you buy?
    at the money? deep in the money?out of the money? and if you buy out of the money- how many strikes out of the money?
    Many thanks
    1 Oct 2014, 10:26 AM Reply Like
  • David Oldenburg
    , contributor
    Comments (130) | Send Message
    I am a big volatility trader, and have traded all the products, VIX options etc... I would just buy SVXY with the same entry point as discussed here. In other words, once a volatility event is on the decline, go long SVXY, or buy long-dated calls. The beauty of being long SVXY, is that you can sell calls against the position should it begin to decline. In addition, SVXY is much cheaper right after a volatility event. However, you could sell UVXY or VXX calls, with unlimited risk. I just like to put the odds more in my favor.


    I have noticed that hedging SVXY with SPY puts is actually a better option than SVXY puts. They are often about the same cost, but if the market really tanks, the SPY puts will gain much more in value than the SVXY puts. It's because SVXY can only drop so far, but SPY can continue to drop in price.


    I like the hedge of waiting until there is a volatility event, then buying SVXY and going long SPY puts about 10% to 20% lower than where SPY is currently trading. If the market drops a little more, I am not protected. However, if there is a black swan, I will actually profit more with the SPY puts than what I lose in SVXY.
    19 Jan 2015, 06:32 PM Reply Like
  • EliteTrader87
    , contributor
    Comments (8) | Send Message
    Any thoughts to selling out of the money puts on UVXY during times of low volatility?
    27 Jun, 05:42 PM Reply Like
  • Nathan Buehler
    , contributor
    Comments (1071) | Send Message
    Author’s reply » That would be a strategy for going long UVXY. I only try and run the short side of the trade. During periods of high volatility I would look at purchasing out of the money puts several months out.
    27 Jun, 08:19 PM Reply Like
  • EliteTrader87
    , contributor
    Comments (8) | Send Message
    Thanks Nathan. Do you have a long vol strategy using UVXY? I know a long volatility system is far more difficult due to the built in problem with the product.
    29 Jun, 10:25 PM Reply Like
  • Nathan Buehler
    , contributor
    Comments (1071) | Send Message
    Author’s reply » I don't personally. I would run through the UVXY articles here on SA and see what others have written about.
    29 Jun, 10:55 PM Reply Like
  • EliteTrader87
    , contributor
    Comments (8) | Send Message
    29 Jun, 11:53 PM Reply Like
  • EliteTrader87
    , contributor
    Comments (8) | Send Message
    Nathan, what are your thoughts on going long UVXY as the next crisis starts unfolding? One could watch the VIX futures and as they start going into backwardation, a long position could be initiated and held until the degree of backwardation subsides at which time you would close the long and then go short. Perhaps use a trailing stop method on the long side given volatility can mean revert quickly and it would aid in locking in profits.
    30 Jun, 07:53 PM Reply Like
  • Nathan Buehler
    , contributor
    Comments (1071) | Send Message
    Author’s reply » You could use that strategy but there may be long periods of time where you don't get a trading signal. I would set your trade signals and start backtesting it to see how it would have actually worked out.
    30 Jun, 09:34 PM Reply Like
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