Ohhh one of my favorite things to trade options on. It's partially due to the drop off in trading activity (including options) in the month of December. In general, December is a pretty good time to sell volatility. I've been selling naked way-out-of-the-money VIX Dec calls just like I did last year (selling them on the dips that we've been getting), mixed in with selling way-out-of-the-money VXX weekly calls. I'm holding on to 10-100 calls ranging from $40 to $55 and will be selling some $37.5 and $35 calls tomorrow or Friday. Last year I booked a 5 figure gain doing this and am on track to do the same thing this December. I have mixed it up this year a bit by selling some VIX puts on the rips up but keep trailing stops on those just to be safe. VIX for Dec should settle below $30. After X-mas, I'll be looking to buy Jan/Feb 2012 VIX calls especially if the volatility keeps bleeding lower.so_scared said:Hey USCT,
Any ideas on what the heck is up with Vix? Market is down 3 straight days and Vix is actually down!
VIX options are cash settled so I believe that's the reason they have a lower margin requirement than selling naked options on stocks or ETFs. Not sure what other brokerages use as the margin requirement but here's an example from my TDAmeritrade account:so_scared said:if you sell naked calls, what kind of margin requirements are there? Does it only require you to post margin when the calls are OTM?
USCTrojanCPA said:Went short some more naked $35, $32.5, $30, and $29 VIX calls for Dec Friday and this morning. I'm thinking about doing a calendar spread on the VIX....selling the Jan $30 calls and buying the Feb $30 calls. Sooner or later the VIX will spike up and I'm guessing that'll be after all the holidays pass.
Remember that we'll have 3 holidays where the markets are closed for trading between the Dec 2011 and Jan 2012 VIX option expiration dates. The VIX may not start to move up until the 2nd or 3rd week of Jan so doing a calendar spread makes a lot of sense in my mind. If the VIX explodes higher in Jan, I'm still protected and will profit because I'd be long the Feb. 2012 calls. I'll be looking to set up the calendar spread probably next week.so_scared said:USCTrojanCPA said:Went short some more naked $35, $32.5, $30, and $29 VIX calls for Dec Friday and this morning. I'm thinking about doing a calendar spread on the VIX....selling the Jan $30 calls and buying the Feb $30 calls. Sooner or later the VIX will spike up and I'm guessing that'll be after all the holidays pass.
I heard the term structure for Vix has April or May still at 30 or something so seems like a smart bet. But why Jan? You think we will stay this low on Vix through January expiration?
USCTrojanCPA said:Remember that we'll have 3 holidays where the markets are closed for trading between the Dec 2011 and Jan 2012 VIX option expiration dates. The VIX may not start to move up until the 2nd or 3rd week of Jan so doing a calendar spread makes a lot of sense in my mind. If the VIX explodes higher in Jan, I'm still protected and will profit because I'd be long the Feb. 2012 calls. I'll be looking to set up the calendar spread probably next week.so_scared said:USCTrojanCPA said:Went short some more naked $35, $32.5, $30, and $29 VIX calls for Dec Friday and this morning. I'm thinking about doing a calendar spread on the VIX....selling the Jan $30 calls and buying the Feb $30 calls. Sooner or later the VIX will spike up and I'm guessing that'll be after all the holidays pass.
I heard the term structure for Vix has April or May still at 30 or something so seems like a smart bet. But why Jan? You think we will stay this low on Vix through January expiration?
Yeah, if the VIX shot up before expiration then I would cash in my Feb calls at a gain to more than offset any losses on the Jan VIX calls.so_scared said:USCTrojanCPA said:Remember that we'll have 3 holidays where the markets are closed for trading between the Dec 2011 and Jan 2012 VIX option expiration dates. The VIX may not start to move up until the 2nd or 3rd week of Jan so doing a calendar spread makes a lot of sense in my mind. If the VIX explodes higher in Jan, I'm still protected and will profit because I'd be long the Feb. 2012 calls. I'll be looking to set up the calendar spread probably next week.so_scared said:USCTrojanCPA said:Went short some more naked $35, $32.5, $30, and $29 VIX calls for Dec Friday and this morning. I'm thinking about doing a calendar spread on the VIX....selling the Jan $30 calls and buying the Feb $30 calls. Sooner or later the VIX will spike up and I'm guessing that'll be after all the holidays pass.
I heard the term structure for Vix has April or May still at 30 or something so seems like a smart bet. But why Jan? You think we will stay this low on Vix through January expiration?
But if the Jan Vix explodes and expires in the money, can you liquidate your Feb Vix at that time to lock in gains? Because otherwise, Vix could fall between Jan opex and Feb opex right?
Yeah, the max I could lose is the net debit I pay for the calendar spread but unless the VIX goes to 15 there will be a good bit of time premium left in the Feb calls. Europe isn't going away because those Germans are a stubborn bunch who might need to be taken to the brink/edge of the cliff before they green light the EBC to print. I checked out various other calls and the $30 (which is in the middle of the bollinger band) seems to be the best play.so_scared said:so the only downside risk is that vix continues to fall and you lose the net debit that you get from selling Jan and buying Feb right? Seems like a smart play given that europe isn't going anywhere. that 30 level seems like a good spot.
How much premium are you paying for the 1 month delta? (I just checked and there is a huge bid ask spread...like 1.05 to 1.4.) Is this right?USCTrojanCPA said:Yeah, the max I could lose is the net debit I pay for the calendar spread but unless the VIX goes to 15 there will be a good bit of time premium left in the Feb calls. Europe isn't going away because those Germans are a stubborn bunch who might need to be taken to the brink/edge of the cliff before they green light the EBC to print. I checked out various other calls and the $30 (which is in the middle of the bollinger band) seems to be the best play.so_scared said:so the only downside risk is that vix continues to fall and you lose the net debit that you get from selling Jan and buying Feb right? Seems like a smart play given that europe isn't going anywhere. that 30 level seems like a good spot.
Well it's about at $1.25ish as we speak. The bid/ask gets wider when the trading stocks on the VIX options at 1:15pm. A better bet would be to see where the bid/ask is during the afternoon trading (11am to 1pm). Normally the bid/ask will range from $.10 to $.20 on options that are somewhat close to the strike. I always put a limit order in between the bid/ask and let the trade come to me. The nice thing for me is that because I trade a lot of options each month (700-900 options each month) I got a special discounted pricing from TDAmeritrade. But I am considering going with OptionHouse for my non-VIX trading stuff (VXX, QQQ, SPY, etc)....they charge $3.95/trade plus $.15/contract which can't be beat unless you trade tens of thousands of options a month.so_scared said:How much premium are you paying for the 1 month delta? (I just checked and there is a huge bid ask spread...like 1.05 to 1.4.) Is this right?USCTrojanCPA said:Yeah, the max I could lose is the net debit I pay for the calendar spread but unless the VIX goes to 15 there will be a good bit of time premium left in the Feb calls. Europe isn't going away because those Germans are a stubborn bunch who might need to be taken to the brink/edge of the cliff before they green light the EBC to print. I checked out various other calls and the $30 (which is in the middle of the bollinger band) seems to be the best play.so_scared said:so the only downside risk is that vix continues to fall and you lose the net debit that you get from selling Jan and buying Feb right? Seems like a smart play given that europe isn't going anywhere. that 30 level seems like a good spot.
Given that the vix is in contango right now, what happens if it goes into backwardation? I thought this happened in the summer when Vix popped over 40, wasn't Nov and Dec at like 30?
Is one month delta so close on the term structure, you never see a backwardation for one month term structure?
Which month are those calls that you went long? I wouldn't be going long the Jan calls unless you are doing a call spread of at least 1 to 2 (i.e. buy 1 lower call and sell 2 higher calls to cover the cost). I'm looking at doing a calendar VIX call spread (Feb/March).LAtoOC said:Italian Debt Auction is this weekend, any VIX ideas? I went long a few calls as a short term trade
Which strike prices did you pick up? You can always hedge by playing VXX options (especially the weeklies).LAtoOC said:January has no theta left so I went with February/March. If the auction fails and riles the market I get a nice gain, if it succeeds I can close out the positions with not too much damage