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Rock228
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I trade volatility ETPs (SVXY, XIV, UVXY), S&P 500 through SPY, UPRO, SPXU, and invest long term in Dividend Growth stocks with high dividend CAGR values. Individual stock picking is a waste of time to me unless the company pays out large and high growth dividends. Macro mixed with Volatility... More
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  • NEW – NEW YEARS PLAN/NEW OBSERVATIONS 100 comments
    Dec 22, 2013 11:39 AM | about stocks: SVXY, UPRO, TQQQ

    Long post so if you just want the plan stop reading when you hit Theory.

    Something is up with the term structure of the VIX the last few weeks. Maybe it is the fact we haven't had any sizable pullback in over a year so we have been sitting down in the 12's and 13's for so long. I don't think the big money can be made on the VIX ETPs until we get a sizable jump in the VIX over a decent amount of time - IE- a stock market 5%+ pullback over a month. The triple long Index fund ETFs will work just as well in my opinion.

    For the last 3 trading days the EOD stats are weird (Dec 18th -20th). Roll yield is acting ok but smaller than normal. Its contango and price of the SVXY which is really weird. Contango has been going up on days the VIX goes up and down the days VIX goes down....not normal. And SVXY is really weird. Down since Wednesday Dec 18th even though Dec 20th VIX was down and most of the day VIX1 and VIX2 were both down.......At one point VIX was down almost 1 and VIX1 and 2 were both down about 25 cents and held steady....yet SVXY kept trending down down down all morning.....wtf?? I don't understand some of the intricate details of how the structure of these VIX ETPs work so I am at a loss. If I don't understand it then I stay away for now.

    I should have switched to UPRO or TQQQ (3x Nasdaq) after Fed day (Dec 18th). So the new plan going forward (until a big stock market pullback comes along or the VIX futures curve term structure starts acting nice again) is to buy some combination of UPRO and TQQQ near the close on Dec 31st. Still looking for up to a 3% move in the S&P 500 to start the new year. Good stock price years tend to follow great stock price years. 2013 was definitely a great year to own stocks. The trend is your friend until the liquidity wave falters.

    NEW PLAN:

    Dec 31st near the market close buy UPRO and TQQQ - 100% of your investment. I am likely to do 50% in each.

    Sell when the S&P 500 is up approximately 3%. 3% jump has happened from Dec 31st until sometime in mid January for 4 years in a row. Sometimes almost exactly 3%. Weird but true.

    THEORY

    I have a theory that this slow taper wind down will do wonders for the US stock market until the whole thing breaks. My theory is the slow taper will cause liquidity to flee the emerging markets over time and come rushing back to the "fastest" growing mature market (excluding China), the US stock market. Why is that?

    Normally the liquidity wave just suddenly appears in the form of QE and then abruptly goes away in both the emerging markets and the mature markets at the same time thus destroying both types of economies at the same time. Examples are QE 1, QE 2 or any of our stock market/financial crashes of the last few decades. This time we are slowly winding down the liquidity wave in a very obvious and orchestrated manner. So the logical conclusion to the beginning of a taper is the market will price in the end of QE….But since we don't know when the QE will completely end (I think it will continue well into 2015 and possibly longer) the market will hedge their bets. The market will price in the US QE liquidity wave receding in the emerging markets first and at some point this year it will fully price in QE stopping in emerging markets. BUT since actual QE will continue (just at a slightly slower pace) the US will not only still enjoy the rising tide of the liquidity wave but also enjoy a big influx of money in to the US stock market from those emerging market accounts that were liquidated.

    The money has to go somewhere and people are looking for a return on capital. Japan and Europe are growing slower than us, China is a bubble looking for a pin to prick it…where else will they park their money? Australia? India? I doubt it. Most of it is coming here. And it won't go into bond funds or cash because emerging market investors are used to higher risk and higher rewards. You won't find a guy who owned 50% of his portfolio in Singapore, Brazil and China now putting his cash into a 30 year US treasury yielding 4% with his principal likely to fall considerably over the next 2-3 years. Not going to happen. They will pile into US equities. And then when the QE stays longer or some of the rounds of taper are reversed much of the money will stay parked in the US because flooding back into emerging markets makes no sense when you know eventually….QE will go away and you will once again get flushed if you hold Emerging market stocks. Not worth it. Just stay in the US and take your 20% return per year - thank you very much! And none of this factors in the late to the game herd mentality that will also snowball in 2014. People in money market funds, Bonds and Emerging markets that watched the US stock market go up 30% in 2013 (over 100% since the bottom) while they made 5% or less are going to eventually capitulate and join in on the action in US equities. Even just a small adjustment by each Fund manager into US stocks and away from other assets will spike the market even higher. The herd tends to be a few years behind the curve. They will all pile in near the top just when they should be getting out. That is to our advantage.

    This is just a theory and I could be way way off on this one. My prediction is we could have a higher stock market appreciation in 2014 then 2013 with lower earnings growth in the S&P 500 assuming that the liquidity wave does not peak and implode on itself which it is bound to do eventually. Very hard to predict timing on the next collapse.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TQQQ over the next 72 hours.

    Additional disclosure: I might day trade TQQQ in my personal taxable account until Dec 31st.

    Stocks: SVXY, UPRO, TQQQ
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Comments (100)
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  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Bought some TQQQ today. 1/3 of a position to straddle the market and still have dry powder just in case.

     

    BTW- Did you know that between 40% and 80% of the yearly return on the S&P 500 is made by the end of April....sell in May and go away is not a terrible idea. But I would rather trade a bunch in the summer and capture the movement to maximize returns.

     

    Think of it like this - get on the bus in January (long stocks) or you will miss most of the gains!
    23 Dec 2013, 03:03 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » I am taking at least 70% long UPRO and TQQQ. Half a position in each. Might keep some cash just in case. Will have to see what happens from now until the close. Currently I have 50% invested.
    31 Dec 2013, 12:00 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Thanks. I am disappointed on SVXY, was hoping for more drastic drop. ATM will probably allocate 50-50 SVXY and UPRO.

     

    Good trading!
    31 Dec 2013, 12:52 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    SVXY looking good IMO ATM, just bought the first lot $$133.31. I do not see the drop in UPRO I wanted, and will probably only get SVXY for this one...
    31 Dec 2013, 03:06 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    OK, got the second lot of $SVXY, now averaging $133.55. Missed buying the third lot when the price went through the roof. Let's see how it goes!
    31 Dec 2013, 03:58 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    Thanks Rock. I'm having trouble jumping in with the VIX climbing so much - though prices becoming more attractive as we speak. Could be an interesting final hour to 2013 coming up here.
    31 Dec 2013, 02:46 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Last few days of a year are all over the place. Pay no attention to them. Look at the metals like Silver, 2% down, 1% up then 1% down all in one day! The last minute tax loss/gain selling and MMs positioning for the new year - Painting the tape.

     

    The real movement of the market will be revealed in the first few weeks of January. I like that the VIX is rising today, gives it plenty of room to fall and for us to get our 3% S&P 500 rise.

     

    Call me Alfred E. Neuman - What me worry?
    31 Dec 2013, 03:26 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    Thanks Rock! I'm in. My play:

     

    1/2: XIV@34.10,
    1/4: UPRO@95.50 and
    1/4: TQQQ@123.20

     

    Not the low-of-day as I had to 'chase' my limits up, all of my original orders were just under the LOD (by pennies!) but couldn't catch any of them. Holding slightly up but 20 minutes is forever on this crazy day.
    31 Dec 2013, 03:43 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » 72.5% invested in UPRO and TQQQ (to be precise).

     

    You guys should do fine on the SVXY or XIV trades and will most likely outperform my trade. I just want to wait for the next VIX spike before I try to play the VIX ETNs. I have very strict rules on trading SVXY and I will not bend on them - ever. Keeps me always in the black on those trades!

     

    Good luck all and Happy New Year!
    31 Dec 2013, 04:07 PM Reply Like
  • VTH
    , contributor
    Comments (613) | Send Message
     
    Rock, you have been great friend all through the year and have thought me a lot, am grateful and thanks a lot for that. One of the lesson of trading vix is in your above comment, when in doubt stay away. Happy to be associated with you and wish you and your family a very Happy and Healthy New Year.
    31 Dec 2013, 04:30 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » VTH - Thanks for the kind words. I have a list of rules for trading VIX ETNs (7 rules) that sit in front of me at my desk. I read them every day that I sit at my desk. Rule #1 - Be Patient! You can catch the next train.
    31 Dec 2013, 05:35 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    7 rules for trading XIV ETNs sounds like a great blog post subject! (hint hint) :)

     

    When I look at SVXY/XIV and UPRO/TQQQ I see them as interdependent in a way. For example if the market tanks on Thursday all three of the ships are going down together, so to speak, as volatility spikes along with the drop. If volatility drops, I would expect all three issues to perform well. I more heavily weighted inverse volatility because it took more of a hammering over the past several days, which I hope will provide more upside.

     

    I would be much happier with these positions if VIX was even higher right now, or we had taken a breather with the S&P. Overall I'm happy where I got in, looks like a 1%+ gain on the day to provide a few seconds of breathing room if the market doesn't do what we expect. Speaking of... is there a downside limit where you would look to exit these positions if the market turns? I am fairly concerned about that climb in the VIX, but am also not one to fight the tape, so a bit of a conundrum. I will almost always err on the side of keeping money working in the direction of the prevailing trend and that is exactly what we have here. Hoping for a great start to 2014 for everyone!
    31 Dec 2013, 06:55 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Very much agreed.

     

    You pretty much read my mind regarding SVXY and the events today. I ended up buying only SVXY during the last 1.5 hours before the close as I did not see UPRO or S&P dropping enough/at all. Buy low, sell high :)

     

    In general my plan is to wait out if any SVXY trade turns sour, and not sell at loss. It looks like that under normal market conditions if one waits 1-2 months contango will give one his/her money back w/ interest. At least that's the plan and has worked thus far...
    31 Dec 2013, 08:04 PM Reply Like
  • VTH
    , contributor
    Comments (613) | Send Message
     
    I was also concerned about the elevated vix and don't know why it has to be after a good run for two weeks. One thing i hear is, people made a good profit for the year and they want to push their tax for 2014, and hence we can see a selloff in the first weeks of the jan. I have both svxy stocks and some options expiring on jan 21st. Lets see what brings us the few weeks of 2014. Fingers crossed. Don't know when to clear the position if market reverses and thinking about it.
    1 Jan 2014, 09:04 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Tortoise - The 7 rules post would be a short one but I can put them up. They aren't technical just advice to keep me from doing what we so often do - chase gains, hold on to long, etc. I've read articles about how we are natural followers of the herd and have a natural tendency to wait and then follow what everyone else is doing. That is the buy high sell low mentality, some say it is in our DNA/an old survival skill we have. The rules are simply to slow me down and think about how flawed our decisions are when we let emotion get involved. It helps me stay logical and fact based on my trades and has saved me from a loss a few times this year. The hardest part of VIX cycle trading is leaving money on the table while sitting in cash and watching the market go higher just before the eventual pullback. That is when the rules really save me.

     

    Seppo - You are right that almost every time SVXY drops you can wait around and get it back in good time. The only time that doesn't work is when the term structure changes (which indicates a true market top is coming soon as in recession time) or when we have large pullbacks. July 2011 is a recent example. Otherwise you are golden.
    31 Dec 2013, 10:43 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Thanks.

     

    How I see this whole thing is as follows (all numbers below are somewhat arbitrary): Each play/trade of say 1X lot can yield say 5-10% gain. One can play/trade ca once per month, as identified e.g. by @rock or @PeterWay.

     

    Under normal circumstances one gets the 5-10% gain in a few days, or if the trade fails, in a few months (assuming that nothing bad as you mention happens) thanks to contango, as discussed by @PeterWay in his recent article. So if one plays 6 trades (i.e. for 6-8 months), one can make ca 30-60% gains on the 1X lot (assuming that one does not reinvest the gains).

     

    Now, the whole thing really boils down to what is the likelihood of a major macro down event or pullback in the same timeframe? And how much would SVXY drop in that case? Assuming that one plays with a constant lot of 1X every time, if the drop is 50% one looses 0.5X on the particular trade that happens to hit the fan (e.g. Fed announces 100% taper out of the blue). But if one has already played the 1X lot say nine times successfully, the net outcome is more or less zero sum, given the arbitrariness of my numbers. Or even net positive if one has played successfully for say 12 months before the hit.

     

    Summa summarum / in other words, since the market in general is going up much more longer periods of time than going down, one should be able to rinse and repeat this SVXY play and come ahead over time...or at least that's my game plan at the moment... :)

     

    And since SVXY is leveraged you are actually making money in the process and not just pennies compared to regular S&P...

     

    I have several 1X lots available to play, i.e. if one trade fails, one needs to be able to leave that trade waiting a few months and have additional 1X lots available for new trades while waiting for the failed one to come back to black. The additional 1X lots are available for me simply because I am keeping good portion of my assets in cash waiting for opportunities.

     

    The actual total return of this whole system is dependent on the above factors, and how many 1X lots one needs to keep sitting idle. If one keeps/needs six 1X lots, the total annual gain is not that good, but if one only needs three 1X lots idle, the whole thing might work well. The number of lots needed depends on the frequency of failed trades. If one constantly fails in trades and always has to wait for contango to fix things, one basically always has 2-3 1X lots tied up...and one has doubled-tripled the time frame for gains, and doubled-tripled the monies tied to SVXY if and when stuff hits the fan and SVXY drops like a rock. So this game is also dependent on making succesfull individual trades and not tying too much money on the risky SVXY over longer periods of time...

     

    Anyways, sorry about the lengthy rambling.

     

    Again @rock, thanks for all your insights, and keep it coming!

     

    Happy New Year and Good trading to all.
    31 Dec 2013, 11:51 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    Interesting Rock! The effect of biases on our decisions is a useful topic and something to keep in mind with every trade. One of my big ones is being happy when I'm ahead on a trade and worrying if I'm not at least 'even'. If I'm not 'even' I'm much less likely to sell, even when I should. I think this one is called the sunk cost fallacy. Once the money is lost it's gone - all decisions should be made based on present facts, not entry or exit points. I tend to think about biases a lot, the most fascinating part is that by their nature, we are unable to detect their influence on our decision making (though considering them can help minimize their impact).
    4 Jan 2014, 12:31 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    Hi Seppo - this is an interesting way to manage risk though it is the opposite of how I approach the trade. I would not want to leave even my 1x lots in a lost position. I tend to cut my losses and look for a better entry point to deploy the entirety of my SVXY funds to maximize the potential gain. I think where the 1x lots could really run into trouble is when the market turns against us. In that case, especially if we fall into backwardation, there may be no recovery, just further losses. I do like the aspect of having cash on hand waiting for the best entry points to deploy further lots though, I could see that working well!
    4 Jan 2014, 12:37 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    @thetortoise I absolutely hear you. The downside of my approach is that if and when the market turns to backwardation, or we have a full sized correction, I will have to bail out, or wait a much longer time (perhaps even more than a year, assuming that the ETF is not liquidated) to get even. So I can only continue w/ my approach as long as contango is in place, to save my back within a few months time frame.

     

    So for example at the moment I am a bit underwater in my New Year's trade, but I am going to wait/force it turn a profit. If I continue w/ this approach for several rounds, before the big hit hits, statistically things should work. We'll see :)

     

    But as you say, one needs to always have spare cash to play even when things turn sour.

     

    Bottomline is that 1X can not be more than say ~1/6 of your total portfolio.
    4 Jan 2014, 01:56 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Or, another way to look at SVXY is that the relatively large volatility of SVXY in a general uptrend allows for larger gains than simple buy and hold. If one buys at the dips (basically following @rock and other's timing advice), the extra profits (by not allowing any losses thanks to contango) one accrues over time should be enough to counter any major loss due to a major macro event...

     

    http://bit.ly/19V1xNK
    4 Jan 2014, 02:04 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    OK, I wrote a little Matlab/Octave script to put some numbers in to my thinking above. You can find the result here:
    http://sdrv.ms/1cSlVQS

     

    We are interested in the final matrix, named TotGain_wLoss. Basically the matrix presents the total gain (%) for a one year series where one plays SVXY once a month (i.e. total of 12 times), compounding the monthly gains, and there is one catastrophic event.

     

    Different columns represent different monthly gains, going from 0% to 20% in steps of 4% points. The rows then represent different losses due to the one catastrophic event, where the loss goes from -10% to -80% in steps of 10% points.

     

    Looking at the data, the still realistic and sweet point seems the third column (i.e. 8% gain in each monthly play). For example, even if the catastrophic event is -40%, the total gain for the year would still be 51%.

     

    So it indeed looks to me that this is a possible play, but not for the faint of heart :)
    5 Jan 2014, 10:18 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Seppo:

     

    Thank you for writing the script.

     

    Since Contango averages about 8-10% per month, a stable VIX futures (Over the year) will account for the monthly gains.

     

    Also, any short term blips in the futures (ie- when spot vix goes by by $2 and then reverses) washes itself out over time.

     

    For black swan events, I look at a possible drawdown of 60-80% and see if I can live with the results over time. If I can, then no need to buy protection as time is on my side. If not, then buying some protection is advisable.

     

    Great work!!!
    6 Jan 2014, 06:36 AM Reply Like
  • jamesingram32
    , contributor
    Comments (576) | Send Message
     
    Seppo, you remind me of John Arthur of the FT, longview. That's a compliment, btw
    7 Jan 2014, 09:09 AM Reply Like
  • Learner16
    , contributor
    Comments (300) | Send Message
     
    Thanks, Rock, for your posts and comments.
    1 Jan 2014, 10:44 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Learner - no problem, just opinions and conjecture :) I have no crystal ball just playing high probability trades.

     

    Bill Luby is the master on all things VIX. I recommend you read EVERY article he posts and follow him on here. His website is the holy bible of VIX. We all stand on the shoulders of giants like him.

     

    http://seekingalpha.co...

     

    http://bit.ly/ezb4Eb
    1 Jan 2014, 09:40 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    Thanks Rock for the recommendation to start following Bill Luby. Looks like great stuff with exceptional returns to boot. Study study study is the key to such complicated instruments as the VIX. Much easier to study than to learn lessons the hard way!
    4 Jan 2014, 12:46 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Well it seems both UPRO and SVXY trades are getting burned today. I do not see anything really worrisome in the horizon, so I am planning to wait out and let contango save my SVXY trade:
    http://vixcentral.com

     

    Thoughts anyone?
    2 Jan 2014, 03:00 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    OK, I am playing hardball here. Bought a 3rd lot of SVXY, at $132.07 just before the bell...
    2 Jan 2014, 04:07 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Seppo:

     

    I did not do any year end trades and as I mentioned in another Rock's blog, I sold all my SVXY when the spot vix went below 12.50

     

    Even though the spot VIX is up today, I do not like the VIX structure. Spot VIX is higher than January's futures, so if spot VIX increases, SVXY will drop. When you have contango between spot vix and front months future, the spot vix can increase without it automatically dropping SVXY price.

     

    In addition, contango between January and February is small (less than 7%) compared to historical contango (about 8-10%).

     

    Finally, we have the FED tapering, the FED meeting in January and the debt limit in early February.

     

    For all of these reasons, I am staying away from SVXY in my trading account.

     

    Now, as far as UPRO and TQQQ, I posted that I was afraid of tax selling happening in the beginning of the year. We are also getting rebalancing occurring.

     

    In my humble opinion, these two ETF's may be a good trade starting about Monday-Tuesday of next week up until mid January (when the concern about the upcoming FED meeting and the debt ceiling may put a temporary halt to the advance.

     

    After the debt ceiling is resolved, I see all of these ETF's gaining strongly.

     

    These are just my current opinions and can change in the future. Do not take this as any recommendation to invest your own money (disclaimer).
    2 Jan 2014, 04:58 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    OK, I sold half @$139.50, a ~4.5% profit in 10 days.

     

    VIX seems to be so low already that any future upside on SVXY must come from simple contango?
    10 Jan 2014, 02:45 PM Reply Like
  • jamesingram32
    , contributor
    Comments (576) | Send Message
     
    that's what i was thinking when i sold yesterday 100% for 3.2% gain. Hard to see VIX going lower from here, at the moment, no?
    10 Jan 2014, 04:20 PM Reply Like
  • KIA Investment Research
    , contributor
    Comments (13126) | Send Message
     
    Good going Seppo .. I think I have a lot of homework to do here :)
    10 Jan 2014, 07:56 PM Reply Like
  • VTH
    , contributor
    Comments (613) | Send Message
     
    Seppo, same here, i guess people are scared about the 30% gain last year and thinking there is a correction coming.
    I wish i had more cash to put in svxy. But, i will wait out until tuesday and make the call. Most probably svxy should erase all its lose today by tomorrow evening, friday is usually good for vix.
    Well anyway, in the hindsight, i should have sold when vix was less than 12.
    2 Jan 2014, 03:48 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    Not a good start to 2014. Support is holding on the S&P. I am holding as well. See what happens tomorrow. More Fed dollars in the pipeline. There was no POMO today to help prop up the market.
    2 Jan 2014, 03:49 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » I have no crystal ball like I said. One day doesn't throw me at all. I agree with RJL, Monday will be the first test. I would be shocked if we are not up 3-4% by the end of January. I am down about 1.3%

     

    40-80% of the stock market gains come by the end of April. You need to be long this market until it tells you to get out - maybe not long on the 1st trading day though ;0) Patience and like I indicated have some cash just in case.

     

    I don't like this time of year because it throws off my VIX cycle modeling. I need to see a defined top or bottom before I can get back in the game on SVXY. Until then it is history and trend following for me!
    2 Jan 2014, 06:19 PM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    Bought some SPY calls on the dip. Hoping it goes up 1.7% by Jan 10th. Spent about 1% on the calls. Calls were in the green by the close. I think the market will bounce back tomorrow or Monday. Couldn't resist buying the dip. Did a limit order and got a good fill at the bid price on two separate orders. Glad we were only 70% long. Thanks Rock!
    2 Jan 2014, 10:41 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    I liked the TQQQ sell off today and that the S & P was able to minimize the losses when selling happened late morning.

     

    I took a 30% position in UPRO/ TQQQ (split 55%/45%). Since I was 100% in cash in my trading account, I have no problems holding this until mid May (but would think about selling this if a better opportunity arises).

     

    I also did a call spread on SVXY, maturing 1/18/13. I bought the 115s and sold the 125s for a net debit of $8.50. If SVXY holds above $125 by option expiration, I should net about 17% on this trade. If not, I will exercise the option and buy the stock at an effective cost of $123.50

     

    Good luck all.
    3 Jan 2014, 03:14 PM Reply Like
  • VTH
    , contributor
    Comments (613) | Send Message
     
    Why are guys on tqqq? You think nasdaq will outperform s&p this year?
    3 Jan 2014, 07:12 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Yes.

     

    Technology and Industrial companies is what everyone is talking about for 2014.
    3 Jan 2014, 08:09 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    That was a dirty close on Friday RJL on an overall crazy day. Was feeling pretty good on that end of day rally until it quickly cratered into the close. I keep watching that 1829 level on the S&P and am still in, though I would have been happy sitting out those two days in retrospect! If we open down on Monday I will start scaling back my positions to hold a bit more cash in case we do start turning down.
    4 Jan 2014, 12:42 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Yes, I also hated that close.

     

    Everything was looking so good until the market dumped at the end. Since I bought TQQQ when it was already down 2 dollars, I was fortunate to be about break even on TQQQ and UPRO for the day (and up on my SVXY call spreads).

     

    As Rock and I mentioned, next week is the key.

     

    We have the first full week of trading (Higher volume), earnings start to be released and we have the all important monthly job number on Friday.

     

    As I mentioned, my trades were only at the 30% level, so I have plenty of cash available if the market starts to tank (Maybe S & P back to 1800). If this happens, I will scale in some additional trades and just wait (no matter how long) for the market to recover and my positions to be positive.
    4 Jan 2014, 05:36 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Market is not looking good this morning (from up 5 points on the S & P 500 to down about 7 points).

     

    S & P 500 20 day moving average is 1811.89 and 50 day moving average is 1792.19.

     

    If we get down to about 1815, then I will be buying some more.
    6 Jan 2014, 11:45 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » I sold and am looking for better entry. Hard to get a good handle on the market. Going to wait until the VIX spikes before I get back in or if a solid foundation for a bottom shows up maybe dip my toes back in.

     

    Sorry for any who lost on this one.
    6 Jan 2014, 11:54 AM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Rock:

     

    No problem, it happens.

     

    I am looking into buying FAS when the market reaches a bottom.

     

    Any thoughts on this?
    6 Jan 2014, 12:31 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    I bought some FAS at the close yesterday.

     

    Total equity position is at 40%.

     

    Hoping the market continues to climb after the all important jobs number.
    7 Jan 2014, 10:30 AM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    Thanks Rock! Losses are never on you. We all make our best assessment, commit capital, and then manage as best as we can during the ride. It was a good play but didn't work out as expected.

     

    As per my ‘rule’, I reduced my position by 1/3 in this trade when we broke 1829/1827 area. I took another 1/3 when the little recovery rally was looking exhausted in the afternoon as I’m just not liking this market. (at 1/3 I realize I'm basically 1x the market with the amount of leverage these holdings possess.) My XIV position saved the day on my TQQQ and UPRO positions which are down on the trade. Overall down about .5% on the trade and 2.2% in 2013 YTD. Not a great start to the year but it could be worse. Just too many cliffs one can fall down at 3x to hold with so many cracks showing. Really could go either way - but 'probably' up. Let’s see what tomorrow brings!
    6 Jan 2014, 05:05 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Ever since I sold the market has gone higher LOL! You are welcome every one! Yellen confirmation makes everyone happy today.

     

    Honestly I don't have the time right now to keep up with the markets so I am staying neutral for a bit. Family matters to take care of have taken all my time since New Years. Good luck all.
    7 Jan 2014, 10:09 AM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Rock:

     

    Thanks for your post and best wishes for your Family Matters!!!
    7 Jan 2014, 10:24 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » BTW - my last calculation was 1868-1882 on the S&P 500 before the VIX starts to move higher. If that helps anyone.

     

    If VIX moves up before Thursday close (for Jobs #) I may do a quick SVXY play.
    7 Jan 2014, 10:12 AM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Thanks!
    7 Jan 2014, 10:41 AM Reply Like
  • jamesingram32
    , contributor
    Comments (576) | Send Message
     
    Thanks Rock. I'm up 3% on SVXY now since Dec 31st...so i will monitor closely. Your thoughts on buying on Thur has me considering selling out before then, now.!

     

    Happy New Year
    7 Jan 2014, 12:16 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    @rock, anyone Would you know about a good central site/location for listing the times and dates of variety of relevant events, i.e. FED meetings, various economic numbers being released etc etc?
    7 Jan 2014, 03:21 PM Reply Like
  • jamesingram32
    , contributor
    Comments (576) | Send Message
     
    that would be excellent. CNBC used to have a good calander, but I cannot find it anymore.
    7 Jan 2014, 06:11 PM Reply Like
  • Newbie_Investor
    , contributor
    Comment (1) | Send Message
     
    @seppo marketwatch has an economic calendar. unfortunately it's only a week ahead. If anyone has a better alternative, please post. http://on.mktw.net/sNSr40
    7 Jan 2014, 07:56 PM Reply Like
  • jamesingram32
    , contributor
    Comments (576) | Send Message
     
    http://bloom.bg/itq0bI
    7 Jan 2014, 09:08 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    @james Excellent, thanks!
    7 Jan 2014, 09:22 PM Reply Like
  • jamesingram32
    , contributor
    Comments (576) | Send Message
     
    @seppo, you're welcome, I knew I'd seen it somewhere. I posted this as i fell asleep last night, hence it was brief!
    Looking at today, thur, fri, do you see anything to perhaps sell out the SVXY position? Are you still sitting on yours?
    cheers
    8 Jan 2014, 07:54 AM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    @james Sorry about not replying to you in a timely manner.

     

    I sold half of my $SVXY position and I am still holding to the other half. The plan is to wait for my target, until mid next week at the latest. At that point I would like to be out and ready for the next round of buying as the Fed meeting approaches on the 29th. And on the day then again follow @rock's general plan of buying leading to the announcement.

     

    Last week's jobs numbers again proved to me that I do not have a clue how events and announcements affect S&P, VXX or SVXY. I expected good or normal numbers, and was holding on to my SVXY. Then the numbers were really, so I was wrong...I would have expected a rise in VXX and drop in SVXY but that never came. Go figure.

     

    Anyways, this is exactly why I like SVXY. No matter whether I am right or wrong, as long as there are dips (and some of them are even predictable, re Fed meetings), and the general macro investment environments stays the same and feeds contango I should be fine.

     

    So right now my SVXY trading philosophy is to buy in the dips, and sell when I reach my target sell point (7-10% gain). And then repeat, following my matrix above. If things get very prolonged (over 4-6 weeks say), or if there is a major change in macro environment, and/or if contango dies, I will step to the sidelines. Until then, happy trading :)
    13 Jan 2014, 12:18 PM Reply Like
  • jamesingram32
    , contributor
    Comments (576) | Send Message
     
    thanks Seppo.
    you'll have seen I sold at $138. Made 3.2% and a few hundred bucks, which goes nowhere near filling the hole created by todays event in the rest of the portfolio!
    However, it may be another buying opportunity again into SVxY...unless there is more of this to come tomorrow.
    Vix is still less than 14, and could rise on this talk back to 15.
    Then again, as the real earnings begin to come in the market could calm down, so perhaps today is one of those dips you are talking about...

     

    cheers
    13 Jan 2014, 03:27 PM Reply Like
  • jamesingram32
    , contributor
    Comments (576) | Send Message
     
    so, I bought 3 Jan 18 $135 call contracts at $2.50. at 3:45 ET Will report back on progress or lack of.
    13 Jan 2014, 03:47 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Rock:

     

    Thanks for the information.
    7 Jan 2014, 10:25 AM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    I sold my TQQQ, UPRO & FAS for a gain of 0.58% (better than a loss)

     

    My call spread on SVXY is up about 10% now (max gain of 17.5% by close of next week (if SVXY stays above $125.

     

    Good luck all.
    7 Jan 2014, 12:21 PM Reply Like
  • VTH
    , contributor
    Comments (613) | Send Message
     
    Guys, what do you think of fed mtg minutes. They think QE benefit is declining. If it is, and if they start doing taper full year, GOD knows what happens this year.

     

    Rock, your wish is coming true, QE is disastrous. May be more QE to 100B/month coming?
    8 Jan 2014, 05:21 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » VTH - Fed minutes are PR fluff piece. The Fed knows the real reason behind QE and trust me they know it works and will continue to do it as long as they feel they can. Two things will stop them

     

    #1 - Economy looks ok on its own. But that isn't sustainable and it won't last long at all UNLESS peoples take home pay starts to go up. So even if they stop QE it will come back within a year maybe less if incomes don't rise.

     

    #2 - Inflation starts showing up. The scary thing is by the time the Fed sees the inflation it is usually to late. And they really can't do much about it because if they jack interest rates then our budget deficit soars - the Fed isn't buying our debt by then which means interest rates rise even higher with less buyeres.....bad death spiral. They can't sell their assets on the balance sheet for the same reason.....stuck.

     

    This will all end poorly. No idea when. Just know that it will. Until then stay focused on making as much bank as possible on these fantasy economic schemes!
    9 Jan 2014, 11:52 AM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    I sold the last of my XIV yesterday for 35.07 (same as today's closing price). XIV might continue to gain but I'm just not seeing a lot of reward for the level of risk with this jumpy market. What is interesting to me is the performance of ZIV over the last week. It is matching if not beating ZIV. Considering jumping back into that trade and regretting my no position over the last week - though perhaps missed the easy money boat - not sure. Would have been a low stress way to pick up some nice gains. Happy with the TQQQ performance over the last few days as well. Still seems like yellow flags are up but cautiously optimistic with my finger on the sell button.
    9 Jan 2014, 12:19 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » All - Market doesn't know which way to go yet. Strange things happening with VIX being so low (before today) and yet Contango being relatively low and the structure of the yield curve right now has not been seen during most of QE infinity (curve is indicating close to a TOP on VIX yet we were under 13 VIX...). Again, all things point to market doesn't know which way to go....

     

    That being said, still considering buying SVXY at the close for a Jobs number Friday bump. Have to look closer at history to see if VIX at this level works well or not. Is good news going to be seen as bad news -faster taper - and sink the market?? Hard to tell.

     

    Unless I find a compelling reason to buy SVXY I will either sit this one out. One small caveat is January earnings season tends to be a low volatility time... But look at FDO who reported today - missed slightly and got crushed! If Alcoa misses then who knows what the market does. I think I just completely talked myself out of SVXY Friday trade LOL!
    9 Jan 2014, 11:44 AM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    I had previously posted that I cashed in all equity positions and just held the call spread on SVXY.

     

    Since I was sitting on cash and it looks to me that the market maybe (hopefully) has bottomed today, I bought some UPRO. This is only 15% of my account.

     

    It is a crap shoot (as Rock mentioned above), but since it is a small position, I will just hold it if the trade goes against me.

     

    Let's see what the afternoon brings us.

     

    Good luck all.
    9 Jan 2014, 11:52 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » All - I just did my VIX cycle analysis and had I owned SVXY I would have sold Yesterday - 1/8/14 (assuming I missed the sell signal on 12/26/13 - VIX into the 11's intraday always equals sell). All of my SVXY sell signals were hit yesterday. I am not doing the jobs number trade. Waiting for my next buy signal to be hit before going back in the waters. The system I use is designed to sell before and sometimes well before the inevitable next cycle up. I wait patiently for the next train.

     

    I hope your UPRO trade works out RJL, I still have my 401k in the S&P 500.
    9 Jan 2014, 03:04 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Thanks Rock, I agree with you on the SVXY thoughts.

     

    My 401(k) is still 1/3 invested in the market (S & P 500 & Extended Market Indexes) and 2/3 was in the brokerage account.

     

    I used 15% of this brokerage money for my UVXY
    9 Jan 2014, 03:24 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    I meant for my UPRO.

     

    I have been talking to several people today on the Yah XXX 00 message board on UVXY
    9 Jan 2014, 04:06 PM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    I'm back to cash as well. I wonder if a big jobs number could set off a correction. I hope so!
    9 Jan 2014, 04:00 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » I am 100% cash now. Jobs # - what a stinker! Labor participation rate at 40 year low. Ouch! This is recovery? I'd hate to see what recession is! With productivity gains near their expected peaks we need high job creation (200k or more) AND income gains to sustain this 3% GDP growth rate (fantasy) that everyone thinks will happen in 2014. I am not buying it...yet.

     

    So many people caught flat footed on this one. Everyone and their mother thought we would get close to 200k jobs. When everyone thinks the same thing you should be wary. I am still surprised the VIX is in the 12's today. I feared today was going to be a blow off top day with good jobs number. Unless earnings blow people out of the water I think we bounce around a bit but the trend is down. Earnings is the only catalyst to go higher now that the jobs recovery is in question, so is 3% GDP growth...

     

    So I sit on my hands waiting for the VIX train to tell me when to buy next.
    10 Jan 2014, 12:15 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    I just sold my SVXY call spread at $9.75.

     

    Bought last Friday at $8.50 so a 14.7% gain in a week.

     

    Wow, I wish I could do that every week!!!

     

    Have a great weekend all!!!
    10 Jan 2014, 03:17 PM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    Rock,
    What do you think about buying some VIX calls that expire on 2/19? Reasons the VIX would go up: VIX is low (12.17), Increasing chances for a correction, Jan 29 Fed meeting announcement, Non-Farm Payrolls report 2/7, FOMC minutes release 2/19. Also, we'll be due for a spike by then - last VIX spike was on 12/17.
    Or, do you prefer to wait on a spike and play the back side?
    Thanks!
    10 Jan 2014, 03:51 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » RJL - Great job, congrats! I wish I had the time to actively trade but family comes first.

     

    William - I think that is a solid trade...unless earnings are crazy good. I prefer Call Spreads like RJL did (limits risk), especially when buying the VIX options. To much premium in them and notice they always seem to expire the day BEFORE the Fed meetings that happen mid month......tricky. Be careful, they actually expire at the close 2/18, not 2/19. Always a Tuesday expiration.

     

    Personally I want to stick to the easy trades but to each his own. Playing the spikes is a lot harder to do and I have not spent much time trying to figure it out. When you can make 100%+ gains/year just trading SVXY I stick to what I know.
    10 Jan 2014, 04:35 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Thanks Rock- hope all is well with your family.

     

    I put in another limit order for SVXY call spread, let's see if it gets traded.

     

    The only problem with these is the large spread between the bid and ask and trying to get these spreads traded at a fair price.

     

    I am in your corner 100% about not playing the VIX / UVXY calls. Why ruin a good thing when you are ,making in excess of 100% per year????
    10 Jan 2014, 05:30 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Proshares announced split on SVXY (2-1) and on UVXY (1-4) after close of business today/

     

    http://yhoo.it/JOw2vf
    10 Jan 2014, 08:56 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Notably today UPRO, and S&P are down, but VXX is down too (and not up). VXX and SVXY are measure of future volatility or inverse, as predicted by the markets. They are not measures of market direction per se. This another reason why I really like SVXY.

     

    Even when the market drops, if the drop is mild, and expected by the players, the drop can happen w/ VXX going down. In other words, even a down market can be business as usual.

     

    I have been thinking about this phenomenon recently. Does this make sense? If true, a controlled downturn would allow volatility traders still make money as contango would persist?

     

    In physics terms, if you disturb the system (change in market direction) slowly/gently enough it does not start to oscillate/vibrate (volatility).
    13 Jan 2014, 12:31 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Now, starting around 12:20PM today S&P started dropping quickly and a bit steeper, from negative ~0.10-20% range to negative ~0.50% range, which was enough of disturbance in the Force to pull SVXY down...
    13 Jan 2014, 01:00 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » I might have nailed the top to the day. I had 100% of 401k in the market and sold it at the close on Friday 1/10/14.

     

    I doubt this is a one off thing, I think the market will pullback further from here. Once the VIX starts moving quickly up it rarely moves back down until it reaches the 16 mark. 16.21 was the lowest high for VIX cycles last year. At 16, that is when you consider buying SVXY and going long the market in my humble opinion.

     

    Why a pullback now? People have been begging for one and the Fed heads saying this one lousy data point (jobs #) won't discourage them from QE taper and that is upsetting the markets. The bond market is saying this isn't a one off number. I think the stock market trusts the bond market more than the Fed.....thus the selloff.

     

    You can see my latest Instablog for other good VIX info. I will post when I see a bottom - when to buy SVXY and UPRO.
    13 Jan 2014, 10:18 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    Nice job Rock! My 401k is still in the S&P, though since I changed jobs in 2013 and rolled my balances - so far it's the smallest portion of my portfolio so I'm slower to mess with that balance. Otherwise I'm 99% in cash and 1% in February 18th VIX calls (that were up nicely today for my first trade with this instrument!)

     

    This market just wouldn't pull back! I'd be happy with another percent at the very least, if not another 4% or so. So glad to be out of TQQQ and UPRO today. Not at all what I expected today. Was beating myself up all weekend for bailing on the market too soon.

     

    With work I'm having trouble keeping up with everyone's posts on here, but this is a great forum you've created with lots of great ideas and people posting. I check these posts daily even when I don't have time to respond. Thanks to you and all for your ideas and updates!
    13 Jan 2014, 11:03 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Oops. May have spoke to soon. Oh well. I am likely to do a VIX call spread today for Feb expiration. $13 to $15 call spread. Also might do a straight VIX $14 or $15 call just to see the difference in returns. Small positions, no more than 5% of trade account.
    14 Jan 2014, 12:21 PM Reply Like
  • jamesingram32
    , contributor
    Comments (576) | Send Message
     
    hey, Rock, I made 100% on a tiny 3 contract SVXY call Jan 18 holding bought last night, sold today. Against your advice from yesterday, but I would not be in this game at all without your input in the first place!

     

    The strength of your pages, and your advice is precisely that you don't pretend to be right 100% of the time. This is actually quite a rare thing from contributors on these sites.
    So...
    Thanks again
    I'm gonna print off those 7 rules as well :)
    14 Jan 2014, 12:30 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    Hi Rock those calls are close to what I picked up yesterday - got some $12 calls and $15 calls with February 18th expiration. Just over 1% of my trading portfolio. I would not be surprised if VIX fell back into the high 11's again today. Nothing would surprise me this day! I'm back to my plan of holding for the "main event" debt ceiling fight. Sadly we have whipsawed right back to limited upside for XIV/SVXY territory. The market is more or less flat for the year. The market is so much crazier when glued to leveraged ETF's each day. To anyone else it would appear nothing has happened in 2014.

     

    Congratulations on a great day james, seppo, and RJL! I'll see you back on the XIV train shortly I'm sure. :)
    14 Jan 2014, 01:02 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    I just bailed out, sold the second half. Luckily the train did not hit yesterday, now VIX being so low again, and since I was close to my target, I decided to take the profits and wait for the next opportunity.

     

    This is good stuff...until it lasts... :)
    14 Jan 2014, 01:18 PM Reply Like
  • jamesingram32
    , contributor
    Comments (576) | Send Message
     
    I hope so Tortoise, thanks. This a nice area to trade in, i.e. fear. And there are so many great clever heads involved in this board, I'm very happy to make some money, and learn as well.
    Wonderful. Thanks all.
    14 Jan 2014, 03:47 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Did VIX Feb Call spread 4% of my trade account.
    $13s at $1.56
    15s at $0.84

     

    Break even at $13.72 and max profit of 175% with VIX at 15 on expiration day. You have to have a hearty stomach to watch these puppies. I am down 4% already and I just bought them!! LOL Patience is needed for this trade.

     

    I am not wrong about Friday until S&P finishes a day higher than 1842. But yeah I was wrong that the market would continue to pull back today. Glad someone made money on me being wrong!!
    14 Jan 2014, 03:43 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Rock & Tortoise

     

    Help me out understanding this trade.

     

    If the SPOT VIX jumps alot (reverse of today) in the next week, I would think that the VIX calls at $15 would increase at a much faster basis than the VIX calls at $12 or $13.

     

    The reason for this is that the $13 calls are already priced for a break even at $14.56 while the $15 calls are at $15.86. Sudden spikes on the VIX have more affect on the outliers than the inner options (see what happened today on the Feb $15's and $12,s/ 13's

     

    Now, if you anticipate a slowly rising spot VIX, then this would be a different story. The $15 would lose its premium over time, while the $13's would keep its value based on spot vix rising.:

     

    Am I thinking this through correctly?
    14 Jan 2014, 04:40 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » RJL - Look at the Feb Puts 15 through 12 now reverse the order of them....that is how the 12's through 15's will react on the way up. The in the money numbers (13's) move faster then the out of the money numbers (15's). It is hard to see it because the % change is actually faster on the 15's (smaller base number) at first but that doesn't matter for a spread....we want a bigger Delta - higher 13's number than 15's number- straight up delta, we don't care about % change against each other.

     

    So Put 15's(our 13's) moved 19 cents and Put 13s (our 15's) moved 8 cents. The gap got 11 cents bigger. That is where the profit is.

     

    I hope that makes sense, LOL, very confusing.
    14 Jan 2014, 10:29 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Rock:

     

    Thanks for the explanation.

     

    I understand all that you are saying, but you bought call spreads.

     

    Why are you quoting the changes on the Puts?

     

    I would think that you would look at the changes on the calls (feb 12 was .47 and Feb 15 was .28) and reverse thses with a sudden spike in the VIX.

     

    Thus, the outliers grew at a faster dollar amount because of the sudden spike.

     

    Am I thinking incorrectly???

     

    I totally know that this is very short term, as the longer term the outliers will lose money faster do the time decay.

     

    Finally, what is your trading strategy on these? Keeping them to the end or cashing them out just prior to the debt debate (when VIX may be at its highest and may reverse after settlement)?

     

    Thanks
    15 Jan 2014, 06:47 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » RJL - I guess it is to hard to explain on here. I said puts because that was the "positive" direction the market moved that day(VIX down) which = calls on the day VIX rises....if you swap the order of the numbers on those puts like I said then you also capture the value changes as the VIX moves from into the money from out of the money.....that is the true mirror and how to look at the trade.

     

    VIX 13-15 Call spread - I plan to sell the week of the Fed meeting, buy back on Friday 31st and sell again around Debt ceiling Feb 7th.
    15 Jan 2014, 06:20 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Thanks Rock,

     

    That trading strategy sounds good to me.
    15 Jan 2014, 06:25 PM Reply Like
  • VTH
    , contributor
    Comments (613) | Send Message
     
    Are you guys really thinking about a vix spike for debt ceiling. I think the debate will not go as much as last time as its bad for both the parties. I also know, Republicans like to shoot at their own foot. So, you never know, but the probabilities are very less.
    15 Jan 2014, 11:25 AM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    VTH:

     

    My thoughts exactly.

     

    While I can see the VIX moving up towards the debt ceiling, I see it dropping like a rock after this time frame.

     

    I also see the market gaining in value through this time (historically, this is the best time of the year for new cash flow into the market)

     

    Thus, I do not see any profit potential in this trade
    15 Jan 2014, 11:31 AM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    VTH - It does seem like the debt ceiling debate will be subdued - I heard they are signing an omnibus spending bill to get us to September today. That's not good for volatility. I try not to underestimate "crazy" though and hope for some theatrics. With the midterms there are still plenty members of Congress in districts where their constituents will not be pleased with compromise. I don't know what will happen, not seeing another October like shutdown fight but just don't know.

     

    RJL - I just have straight VIX calls - 2/19/13 - 12's and 15's. I don't have a long-short spread. Full disclosure, all of the calculations discussed above are a bit beyond me and my understanding of options is limited. My play is to dump these on a spike - not holding to expiration - I hope to be short volatility heavily by that date. Just some cheap insurance for cracks that were showing in the market. Starting to look bullish again for the market, but keeping in mind that $5B in POMO is coming in today so some distortion there.

     

    VTH/RJL - Do you have a volatility play for this market? My current thoughts: I'm not liking XIV/SVXY with volatility this low. Contradicting that view is (a) the amount of decay that still needs to flow in this week, (b) the VIX/VXV ration of .84. and (c) steep contago. I was thinking ZIV for the midterms but interestingly the short term futures are climbing substantially today (see VXZ for example). Right now both VXX and UVXY are climbing, spot VIX is down. The market is up. Perhaps paralysis by analysis - I don't see the play here.
    15 Jan 2014, 01:23 PM Reply Like
  • RJL1955
    , contributor
    Comments (401) | Send Message
     
    Tortoise:

     

    I had sold out of my SVXY on Christmas Eve.

     

    I bought back 20% of this on Monday's close (thought the sell off was over done and the VIX spiked into the 13's).

     

    I closed out this trade yesterday about lunchtime (I netted over $4.50 per share on this trade).

     

    Currently, I do not have any volatility trade going. I have UPRO and UXI, which I am comfortable in holding them for the entire year).

     

    I am waiting for a better entry for volatility.

     

    You may want to read my latest thread on when I trade volatility shown on Rock's VIX trading rules.
    15 Jan 2014, 01:34 PM Reply Like
  • VTH
    , contributor
    Comments (613) | Send Message
     
    I closed my svxy shares that bought Dec 18th ( around $130 ) , and closed a small amount of options for near break even today morning. I am fully cash now. I am more comfortable shorting vix than catching it. Let me sit on for couple of days and then will post if I do again.
    15 Jan 2014, 01:49 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    Great trade RJL! I'm way to slow (like turtle speed slow) for some of these trades. I'm still trying to figure out what happened Monday. I'll still be trying to figure out what is happening today on Friday. Need clearer signals with flashing lights to guide me to the trade.

     

    I took at look your volatility trading guidelines and it makes sense! Thank you for sharing your ideas. Basically nobody thinks being long XIV right now a great idea. (of course they could always chime in if so?) I do need to get more long on the overall market if this trend holds.
    15 Jan 2014, 02:16 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    I am out of SVXY/XIV right now (VIX way too low), but did buy some UPRO today, as I expect the market to rally a bit after the dust has settled from the budget negotations...
    15 Jan 2014, 02:36 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » If you look closely, the market doesn't really react to the budget battle. It reacts to Debt ceiling/talk of default and the general tone of Washington. Budget deal does nothing really. The debt ceiling is where it is at.

     

    If I see the GOP start to cave early I will bail on my VIX spread. Worst case if I held until First week of February and GOP caves I can still break even at about $13.20ish VIX. It got to 13.20 on Monday, one down day. So I am taking my chances. :) I am only 4% in - just a toe.
    15 Jan 2014, 06:26 PM Reply Like
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