VXX Trade Update

OnFridayIpostedonVXX,thoughtVIXat15wasjuststupid,IboughtsomeVERYshortdatedVXXcallstheApr21Weeklycallsfor。

37(actuallylowerasaIboughtthemallthewaydownto。

30astheysoldoffintotheclose)?

ThisisinadditiontoaMaycallspreadthatIownandpostedonMarch28th。

-Onthismorningsspikeinvolatility,IdidasIsaidIwouldinFridayspost,Iturnedthetradeintoacallspread?

OntheopeningIsoldsomeofthehigherstrikeAPR21weekly30callsat。

46,thuslockinginatleasta。

09profitandensuringthatIcantloseonthetrade。

IthinkthisisprudentastheseoptionsaresettoexpireonThursday?

SonowIowntheAPR21wkly29/30CallSpreadfora。

09credit?

GoingtoletthisrideandseeifIcangetthefullwidthofthespreadasIexpectvolatilitytostaybid。

ORIGINALPOSTFROMFRIDAYAPRIL15,2011:

WellIgotthetitleofthatpostFromMarch28thright!

Theredefinitelywassomemoredownside。

Marketstillunder-appreciatesawholehostofrisks(commentarybelow)inmyopinion,andwithsomeofthepriceactionthismorningIamseeinginnameslike?

GOOG(down6。

5%)and?

INFY(down13%)onearningsIsuspectthatwecouldbeinforarockyperiodoverthenextcoupleweeks。

VIXat15。

50isstupid,IamstayinglongtheMayVXXcallspread(below),butjustboughtsomeAPR21weekly29callsfor。

37?

WilllooktoturnthisintoacallspreadofVIXspikes。

ButalsolooktoMay,IjustwantedtoquicklybuysomethingwhentheVIXhit15。

ORIGINALPOSTFromMarch28,2011:

VIX(17。

91)ProbablyABitMoreDownsideBeforeTheNextSpike

herewasalotoftalkinthemainstreamfinancialpressovertheweekendabouttherecentriseandfalloftheVIXoverthelast2week?

TomostinvestorstheVIXisjustanotheroneofthosefancyWallStreet(orinthiscaseSouthLaSalleStreet,thatswheretheCBOEislocatedinChicago)inventionstomakeaveragemarketparticipantsfeeltheyneedtheexpertiseoftheirwellpaidbrokerstounderstandsuchcomplicatedissuesasmarketvolatility。

-Mypersonalbeliefisthatwithoutanysortofcontext,theVIXreallyisntthathelpfulforequityinvestorsotherthanidentifyingpanicoreuphoria,andunfortunately2weeksagowesawlittlepanicinthestockmarketdespitetheaggressiveshorttermspikeintheVIX?

Thatsell-offwasalltooorderlyandinveryfewareas,otherthanintheimpliedvolatilityofstocks,didyouseeanypanic?

andthusdidnotdemonstrateanyformofcapitulation,whichleadsmetobelievethatbeforethemarketcanresumethisbullphaseandmakenewhighs,therewillneedtobeanothertestofthe~1250lowmadeinthe?

SPXonMarch16th。

-TheVIXaweekandhalfagotradedashighas31。

20(intra-day)alevelnotseensincelastJulyandalmostbacktotherangethatithadtradednearformonthsaroundthe52weeklowsoftheindex?

Thesuddenriseandfallofthesocalledfearindexhasdrawnoutthosewhothinkitcouldlikelycontinuetogolowerandthosewhothink(asIdo)thatinvestorsandthusthemarketcurrentlyunderpricesthepotentialissuesthatcouldderailthisbullmarket(atleasttemporarily)。

OneofthosewhothinkthattheVIXcouldremainvolatileandlikelyriseinthecomingmonthsisSteveSears,authorofBarronsTheStrikingPricecolumn(read?

here)?

InSaturdayscolumn,Searslaysoutwhathecallsthediametricallyopposedviewspacingstocktradingandstatesthatitishardtohaveconvictionaboutanythingotherthanvolatilityvsthefactoflate?

themarketsamazingabilitytoshedbadnews?

Searslistsawholehostofknownnegativesthathavebeendiscountedandcastaside:

FromBarronsMarch26,2011

risingoilprices;politicalunrestintheMiddleEast;crazyweatherpatternsthatcouldhurtthehedge-fund-heavyretailsector;anewmilitaryactioninLibyaplusoldwarsinAfghanistanandIraq。

DontforgetJapansnucleardisaster;concernsabouttheglobalsupplychain;currency-marketturmoil;thelatestwoesinPortugal,whichareexacerbatingthefesteringsorethatistheEuropeansovereign-debtcrisis;dismalU。

S。

new-homesalesdata;andthesharpriseandfalloftheworldsmostfamousinvestmentstock-marketriskbarometer,theChicagoBoardOptionsExchangesVolatilityIndex(VIX)。

Searsgoesontodetail2optionstrategiesthatcouldbenefitfromeitherasurgeinvolatilityinone,and/orasurgeinequitypricesabovecurrentresistanceandthenasurgeinvolatility?

IthinkbothofSearstradeideasmakegoodsense(ifyousharehisopinion),thesecondone(below)inparticularisaverycreativewaytothreadtheneedleonachangeofcircumstances,butIamlargelygoingtofocusonthelongVIXcalltradeasitismostcloselyalignedwithmyownmarketviewsandandsimilartothetradethatIputonformyselflastFriday?

(belowmyquickcommentonSearssecondtradeidea)

FromBarronsMarch26,2011

TradeOne:BuyVIXcallsincasevolatilitypopshigherduetoanotherevent,likeoilpricesrisingabove$120oranotherearthquaketremorinJapan,whichwouldlikelycausethestockmarkettopoplower。

Toprofitfromatemporarystock-marketdecline,considerbuyingtheVIXMay$19callthatcost$3。

50whenthefeargaugewasat18。

24。

BuyersoftheMay$19calldoubletheirmoneyifVIXtradesto26。

VIXisbasedontheimpliedvolatilityofastripofStandardPoors500Indexoptions,soyoucanthinkofVIXcalls,whichincreaseinvalueiftheindexdeclines,asafancySP500put。

MYVIEWANDPOSITIONING?

IcantdisagreewithanyofreasonsforwantingtobelongMayorJuneVIXcallsandasstatedaboveIthinkthemarketdidntsatisfactorilydisplaythelevelofcapitulationthatisindicativeofabottomandasstatedaboveIcontinuetothinkthatthemarketunder-pricesawholeofhostof?

risk;geopolitical,ourstagnanteconomyathome,thecontinuingsovereigndebtissuesinEurope,risingenergyandinputcostsandobviouslythedisasterinJapanandhowallofthiswillaffectU。

S。

corporateearningsforthebalanceof2011。

-RatherthanbuyingcallsontheVIXIhavebeentradingthe?

VXX,theexchangetradedfundthatisdesignedtoprovideaccesstoequitymarketvolatilitythroughCBOEVolatilityIndex?

(theVIXIndex)futures。

MYTRADEEXECUTEDFRIDAY?

BUYtheVXXMay32/35callspreadfor。

65?

(stockref30。

37)

-Buy?

May32callfor2。

20and

-SellMay35callat1。

55

(note:thesewerethepricesIpaidforthisspreadFridayafternoonwhentheVIXwasapproximatelyat17。

80)

Break-EvensonMayExpiration:

Upside?

stockbtwn32。

65?

(up7。

5%)and35(up15%)canmakeupto2。

35(orover3。

5xthepremiumthatyoupaid。

Downside:stockbtwn32。

65and32canloseupto。

65,below32youlosethefull。

65inpremium(~2%oftheunderlying)

TRADERATIONALE:

-Marketiscurrentlyignoringnewsthat10daysagosentshuttersthroughtheoptionsmarketandsenttheSPXdownalmost7%fromthe52weekhighs?

Thissortofsnap-backrallythatweareseeingnowislikelytoovershootalittletotheupsideandasthe?

panickedbuyersofshortdatedpremiumfrom2weeksagocontinuetosellthatverypremiuminanefforttorecoupwhatevertheycanfortheonceoverpricedprotection,theVIXwillllikelymoveabitlowerintheverynear-term。

-SoIamlookingtoaddarelativelydecentprobabilitytradethatvolatilitywillagainspiketorecentlevels,mybestguessthatthiswillbeatsomepointinthemeatofQ1earningsseasonsometimetowardstheendofApril?

ItisimportanttorememberthattheVIXasanIndexcanmovefargreaterandquickerthanmostsinglestocksorindexeswithmovesoftenregisteringinthedoubledigitpercentages?