In 2013 and 2014 the low price of VIX and the relentless march higher in the indexes made it difficult if you wanted to sell credit as a regular income strategy. The first couple trading days in 2015 have provided an interesting level of volatility in a number of asset classes, raising some interesting trade possibilities. Oil Volatility as shown in OVX has reached and is holding levels not seen since 2009. Gold Volatility as measured by GVZ is above 20. And as I type, VIX which measures the level of volatility in the SPX index is also over 20.
I intend to fade VIX into January expiration. I've done this by selling an Unbalanced Iron Butterfly as shown in the below picture. I sold the 19 put and bought the 18 put, while selling the 19 call and buying the 27 call.
This is an income trade. My thesis is that VIX will settle below 20 on January expiration. I received $1.95 credit for the trade which I will be able to keep all of below 19.92 VIX January settlement. Expiration break even is 20.95. If VIX happens to settle right at 19, I will receive an additional $1.90 credit. Max risk is $6.05 above VIX 27 at January settlement.
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I'll update the status of my trades here, and on twitter @B50cal1978
Leave comments and questions. Tell me what trades you all have in the works.
Good Luck in the NewYear!
STT
Jan VIX trade closed at $1.30 for $.65 Credit. I didn't want to leave this one up to settlement with the market as wobbly as it is. I initiated a new spread for Feb 2015 to continue to fade this Vol. The 20/27 call, 20/19 put Unbalanced Iron Butterfly for Net Credit of 2.00.
ReplyDeleteThis trade has been working for the whole of Q1. A few days ago, when the VIX touched 20 again, I rolled my Feb Butterfly as outlined in the article to March for basically Theta. Not a huge gain, but a gain nonetheless. Today, I was able to close the March Butterfly for $1.60, or a $.40 profit in 5 days. My current VIX alert is 25 to reload when able.
ReplyDeleteI'm looking for VIX to pick up next week as people begin to take profits after the Market's massive run. I'm long VIX calls in March and April. I would love to sell those for a profit, and then look to sell VIX Butterflies or call spreads.
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