After 2013 and 2014, I developed a sense of the market that served me well in that environment. 2015 is whole new ball game. I'm finding myself having to unwind a couple of positions in assets that in this environment, I want no part of. I also find that I am a little too short volatility for the current environment.
Some of the latest earnings reports for companies that are sensitive to slowing world economies and lower energy prices have reported major currency headwinds, and some have revised down earnings estimates for the whole of 2015. As good as Apple is, I don't think that one name can float a ship that may be taking on a little bit of water moving forward.
VIX generally averaged about 14 in 2014, now that average is higher. I am planning to hedge my short term exposure to VIX by entering an OTM put butterfly in the SPX. The debit I am incurring to hedge my short VIX is about 25% of that position. The OTM butterfly also has a chance to fully balance the VIX position if I can get 300% of the initial debit.
My Butterfly is 100 points wide, so I have a pretty large potential profit area to the down side. I am buying one Feb 2025 put, selling two of the 1975's and buying one of the 1925's. The first long strike of the Butterfly is near current prices, and the short strikes are centered on the 200 day SMA which I believe price action may be seeking.
I was filled at a $6.50 net debit, and I put in a limit order for a 19.5 credit, but I will close on a touch of 1975 no matter the price.
I will update this trade here and on Twitter @B50cal1978
Leave questions or comments! I enjoy a good conversation.
Good luck trading!
STT
My February SPX spread ran out of time. I chose to close this for a $3.20 net debit. I plan to roll into a March butterfly for less than $5 if I can. That puts me behind the 8 ball a little as the whole March butterfly will cost about $8 if if I roll the Feb losses into the cost basis. I plan to get that $3 dollars back from closing the put half of a VIX unbalanced iron butterfly on a spike in volatility. I don't think the volatility of the first two months of the years is necessarily over.
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