Author Topic: Fun with VIX options  (Read 37231 times)

ChpBstrd

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Re: Fun with VIX options
« Reply #50 on: September 30, 2017, 01:18:18 PM »
If you'd like to pursue this trade, but don't feel good about the loss potential, you could try a bear put spread for a lower risk/reward.

https://www.optionseducation.org/strategies_advanced_concepts/strategies/bear_put_spread.html?prt=mx


E.g. for the Jan 2019 expiration, buy the $20 put and sell the $10 put. You buy the $20 strike for $12.32 and sell the $10 strike for $4.75 (I'm assuming you make offers until you execute somewhere between Friday's 9/29/17 bid/ask) for a total net outlay of $12.32-$4.75 = $7.57.

Your maximum gain at expiration, if UVXY is below $10, would be $20 - $10 - $7.57 = $2.43. That's a 32% gain spread over 1.3 years, or 24.6% annualized.*
Your maximum loss if UVXY fails to decline below $20 and both options expire OTM is $7.57. That's still 100% of your initial outlay, BUT that's 38% less money at risk per share than the $12.32 outlay you'd need to only buy the puts at the $20 strike. I.e. instead of risking $1,232 per contract you're risking $757.

*Note that you would want to sell and reestablish your position the next time they reverse split. Also, it's unlikely you would hold the options until maturity because 1) that leaves no time for an exit in the event of a spike right before maturity, and 2) you might hit your max profit from the setup well before then. Expect to hold 6-12 months and then roll to the next expiry. Transaction costs not included.

A bear call spread has the same profit/loss curve as a bear put spread, but you take a credit upfront instead of a debit. I can't recommend that though, because of the greater risk of being assigned early.

ChpBstrd

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Re: Fun with VIX options
« Reply #51 on: September 30, 2017, 01:47:27 PM »
I looked up the option price chain for the Jan 2019 20 strikes http://www.nasdaq.com/symbol/uvxy/option-chain/190118P00020000-uvxy-put

If you go to the 1 year view you see some pretty big nose dives in value. What was your logic in your entry point to avoid being on the wrong side?

Additionally I was playing with this profit calculator, here: http://www.optionsprofitcalculator.com/calculator/long-put.html, and it looks like a step fall needs to happen within the first couple of months, even on the long leap contracts, in order to see a return. Using a Jan 2019 15 strike put it looks like you are seeing a 3% return in May 2018 if the price falls to $10. This seems like not a good return profile and I am wondering if the calculator is not anticipating some factor that you are.

My logic isn't in entry point, it is in duration of the expiry.  Short dated options have a high likelihood of a 100% loss of investment.  Given "enough" time, UVXY will always decay a "large" amount.  This ensures, if not a profit, at least some "moneyness" and recovery of part of capital.  You can improve your odds by going into the money.  The deeper you go, the lower your risk and alas lower your return.

You are correct that the best returns come when the decay happens shortly after buying the put.  My two recent sales where 11.6% gain over 175 days and 9.6% over 6 days.  Obviously, you'd rather repeat the 6 day trade.  I once had the position move strongly against me a few days after entering.  I had to hold 317 days to get a good exit point that yielded about 16% annualized.  That is a "weak" return for this strategy but a damn good one for almost any other trade you can expect to make.  And that is why you want the long dated options.  Sometimes you need a little more time to be right, as in sufficiently in the money to profit.


First, I wanted to say thanks FinanceVelociraptor. It is so hard to find people willing to share their experience in this arena and you have been extremely helpful. This is one of my favorite things to talk about / study and it is hard to find engaging conversation and quality writing on it like you have provided on this thread and your site. I want to be cognizant of your time but did want to share some additional thoughts.

I think I understand your position that taking the long view is what creates value in this trade. But to me there are a couple of risk factors.

1) As mentioned in my previous comment, I am still wondering how much entry matters. For example, consider today. VIX is at $9.50 which is nearly a 52 week low. Yahoo says 8.84 is the low, but I do not see that actual dot on their chart.  UVXY is at 20.58 which is right on its low of 20.51.

At the risk of seeming to peer into a fake crystal ball, I wonder if it is a bad idea to buy then because it seems more likely that VIX would rise, UVXY would rise at some factor, and then possibly the decline would not be swift enough for your position to make money. Though I wonder if I am wrong because when you bought on SEPT 12, that was the then low for UVXY. On SEPT 12, VIX was slightly higher, but had declined from a recent 20% spike (going from 10-12 the week of September the 5th).

2) is the reverse splits, if liquidity dries up when a reverse splits happen, if you are holding when a reverse split happens, are you not forced to sell before the split, or risk paying terrible spreads? Does this effectively limit the time horizon of you options? Put another way in case that is confusing. Say you have an 18 month leap, but UVXY reverse splits every 6 months (just making a number up) then due to liquidity issues you do not really have 18 months to make money, you have about 6. No?

I tried to do some more analysis, with the hypothesis that for example if UVXY is above its 30 or 50 day SMA, then this trade is good. Now I dont have access to historical option prices, but you can see that typically when this occurs (and it doesnt happen off in bull markets) that UVXY does fall precipitously. What keeps me from saying do this every time there is a spike in UVXY, is that I do not understand what the vega risk would be during a time of spiking VIX. I wonder if it would be similar to getting vol crushed if you buy and OTM SPY call after a fall in SPY, where even if SPY recovers, too much of the value of the option is in volatility, so you end up losing money. Did you worry about Vega risk when entering your position on 9/12 as it came after a recent VIX bump up? Perhaps you feel the contango phenomenon trumps all of these considerations....

1) Unlike most directional options bets, this is not an exercise in market timing. It's a bet on UVXY being a long-term value-destruction machine. UVXY has a good chance of falling fast enough that today's price will be higher than the spike during the next North Korean missile launch or irresponsible tweet. Also, see #3 below.

2) Velociraptor and I can both report that liquidity is just fine post reverse split. In a 5:1 reverse split, your options' strike price stays the same, but each contract now represents 20 shares instead of 100. Also, the price of UVXY increases 5X. This means your formerly ITM put options may now be OTM. If you hold these options with not much time remaining, suddenly being OTM may be problematic. delta and everything else move around. The one time I sold my UVXY puts for a small loss was when a 5:1 split happened and I had 2 weeks until maturity (trying to hit home runs)! Lesson: only go long with this strategy.

3) Vega is a paradox with this trade. UVXY is a trade on volatility, and yet volatility influences its options prices. Market volatility can cause UVXY's price to increase, resulting in a decrease in the price of put options (delta). However, increased volatility in the price of UVXY itself is a factor pushing up the price of its options (vega). Vega offsets some of the change from delta, acting as a shock absorber of sorts for the owners of puts. Some advisors (e.g. optionsalpha.com ) recommend selling options during bouts of high volatility and buying when volatility is low. However, when you're playing market volatility against stock volatility, I'm not sure there's as much to gain.

jcan

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Re: Fun with VIX options
« Reply #52 on: September 30, 2017, 06:34:22 PM »
Have you tried to sell calls vs buying puts ?


There is a better way to play the ^VIX mania.  For about 7 years now I have made over 30% annualized on a repeatable trade.  What you want to do is use options to short UVXY.  That is a double leveraged ETN that (badly) tracks movements in ^VIX.  The way the fund is constructed is they buy the 14 and 40 day futures and roll them daily.  Contango in the futures market causes them to (85% of the time or better) sell a "cheap" asset to buy an "expensive" one.  This results in a predictable long term decay that is currently averaging around 87% a year.  Reviewing the price history on Yahoo!, I have been unable to find any 12 month period where the note was up in price (it isn't even close). 

LEAP options are available and I have never lost money by buying long dated put options and holding on while waiting for decay to work its magic.  I currently hold the 18JAN2019 expiry 20 puts.  I purchased them on 12SEP2017 for 11.57 a share (1,157 per contract).  Ten days later the bid/ask split is 12.35, suggesting a 246.07% annualized return.  I have a good till canceled limit order to jump off at 12.55. 

I have completed this trade dozens of times over the last 7 years (well sort of, I started with an unleveraged version of this fund) and have been known to book profits as high as 500% annualized.  The worst I have ever done is 16% annualized.  I document every one of these trades now on my blog.  It is my highest conviction idea and was hugely important to allowing me to FIRE on 5OCT2012 at the age of 40. 

Your current trade carries a significant risk of a 100% loss.  You can stack the odds in your favor by buying long dated puts, especially deep in the money if you want to reduce risk.

Financial.Velociraptor

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Re: Fun with VIX options
« Reply #53 on: September 30, 2017, 09:20:45 PM »

First, I wanted to say thanks FinanceVelociraptor. It is so hard to find people willing to share their experience in this arena and you have been extremely helpful. This is one of my favorite things to talk about / study and it is hard to find engaging conversation and quality writing on it like you have provided on this thread and your site. I want to be cognizant of your time but did want to share some additional thoughts.

I think I understand your position that taking the long view is what creates value in this trade. But to me there are a couple of risk factors.

1) As mentioned in my previous comment, I am still wondering how much entry matters. For example, consider today. VIX is at $9.50 which is nearly a 52 week low. Yahoo says 8.84 is the low, but I do not see that actual dot on their chart.  UVXY is at 20.58 which is right on its low of 20.51.

At the risk of seeming to peer into a fake crystal ball, I wonder if it is a bad idea to buy then because it seems more likely that VIX would rise, UVXY would rise at some factor, and then possibly the decline would not be swift enough for your position to make money. Though I wonder if I am wrong because when you bought on SEPT 12, that was the then low for UVXY. On SEPT 12, VIX was slightly higher, but had declined from a recent 20% spike (going from 10-12 the week of September the 5th).

2) is the reverse splits, if liquidity dries up when a reverse splits happen, if you are holding when a reverse split happens, are you not forced to sell before the split, or risk paying terrible spreads? Does this effectively limit the time horizon of you options? Put another way in case that is confusing. Say you have an 18 month leap, but UVXY reverse splits every 6 months (just making a number up) then due to liquidity issues you do not really have 18 months to make money, you have about 6. No?

I tried to do some more analysis, with the hypothesis that for example if UVXY is above its 30 or 50 day SMA, then this trade is good. Now I dont have access to historical option prices, but you can see that typically when this occurs (and it doesnt happen off in bull markets) that UVXY does fall precipitously. What keeps me from saying do this every time there is a spike in UVXY, is that I do not understand what the vega risk would be during a time of spiking VIX. I wonder if it would be similar to getting vol crushed if you buy and OTM SPY call after a fall in SPY, where even if SPY recovers, too much of the value of the option is in volatility, so you end up losing money. Did you worry about Vega risk when entering your position on 9/12 as it came after a recent VIX bump up? Perhaps you feel the contango phenomenon trumps all of these considerations....

Thank you for the kind words, hgjjgkj.  That is an interesting username.  I'd try to phonetically pronounce it except there are no vowels. 

1)  My "evidence" is experiential/anecdotal and not academic.  But in my efforts, it has been better to buy when vol is "low".  When vol is "high" time value premiums are kind of plump.  The underlying is more likely to decline but the time value usually declines faster.  On a long dated option, that makes a huge difference.  I have been known to buy during very low ^VIX, and sell for a profit into a vol spike as time value actually increases as I move further out of the money.  That is what happened on my most recent sell.  Vol spiked 5 days into the trade.  On day 6, I sold for a 9.66% gross profit or 587.56% annualized.  I stayed out of the trade for a couple weeks waiting for another low ^VIX day to re-establish a position.

2) REVERSE SPLITS - I have never bothered to exit the trade because I was fearful of holding split adjusted contracts.  The liquidity is still just fine in my experience.  There seems to be a faction of some type that is making bid/ask spreads into some sort of boogeyman that devours returns.  You never want to pay the ask or sell for the bid.  Somewhere in the middle of those two numbers, the market maker will take action if you enter a limit order and be patient.  Almost always the very same day for me.  It's the same way after a split.  Getting filled between the bid/ask is a matter of waiting for a MM to find an arbitrage opportunity of a few pennies a share.  Yes, you technically got "taken" but I think of the MM as providing a valuable service for a reasonable fee.  He/she certainly spares you the full cost of the bid/ask spread.  Don't fear the reverse splits or bid/ask spreads.  Use limit orders and sit on your hands.  Patience while stalking prey is the Velociraptor way.

3) CONTANGO - When magnified with double leverage, this is a powerful force.  But only over "long" periods of time.  A skilled technical analyst might be able to make big time gains by using volatility events to trigger opening positions on short dated options (at much greater risk however).  That isn't my game.  Reading charts is too much like astrology to me.  Using time arbitrage on contango is something I have found remarkably reliable.  Nine months down and I'm up about 30% despite having one of my positions move strongly against me this year.  I would have likely lost money on half my positions if I was buying puts with a first or second month expiry.  With the LEAP, I have always recovered.  Take a look here: https://finance.yahoo.com/quote/UVXY/performance?p=UVXY.  The best calendar year for UVXY saw a decline of 62.59%.  So even when luck is not on your side, you can reasonably expect to at least come close to break even given a year or longer to capture contango decline. 

hgjjgkj

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Re: Fun with VIX options
« Reply #54 on: September 30, 2017, 10:01:39 PM »



I forgot my name is gibberish. Your reply makes sense. I definitely think experience is valuable here just because option price history is so hard to get a hold of and backtest on. I am also going to give this a shot and will report back for better or for ill. Though I would mention for future readers Merill does not allow trading options on this ETF. Some random rule about ETFs that involve futures. I applied for an IB account and hope to be running in a few days

Financial.Velociraptor

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Re: Fun with VIX options
« Reply #55 on: September 30, 2017, 10:03:40 PM »



I forgot my name is gibberish. Your reply makes sense. I definitely think experience is valuable here just because option price history is so hard to get a hold of and backtest on. I am also going to give this a shot and will report back for better or for ill. Though I would mention for future readers Merill does not allow trading options on this ETF. Some random rule about ETFs that involve futures. I applied for an IB account and hope to be running in a few days

Brokerages that weird restrictions on their customers annoy me.  Treat your clients like adults already!  IB has been great for trading options.

jacquespluto

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Re: Fun with VIX options
« Reply #56 on: October 01, 2017, 01:42:47 AM »
I use VIX call options for my style of trading like I do with auto/home insurance.  I hope I don't need them, but in the case of emergency I'll be glad they are there.  I buy very cheap, far out of the money call options for black swan event protection which would otherwise be devastating for my trade positions.  VIX tends to be a little sticky when those type of events happen which allows plenty of time to get out.

Before I get raked over the coals, no I'm not using a large portion of my net worth for this trading.  Yes, it is very profitable and I have a very strong background in this arena - it's definitely not for everyone.  I'm a net seller of time premium and not in the form of basic credit spreads.  Ok, that's it :)
« Last Edit: October 01, 2017, 01:46:52 AM by jacquespluto »

Pizzabrewer

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Re: Fun with VIX options
« Reply #57 on: October 01, 2017, 02:45:29 AM »
Ptf

starguru

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Re: Fun with VIX options
« Reply #58 on: October 01, 2017, 09:26:12 AM »

2) Velociraptor and I can both report that liquidity is just fine post reverse split. In a 5:1 reverse split, your options' strike price stays the same, but each contract now represents 20 shares instead of 100. Also, the price of UVXY increases 5X. This means your formerly ITM put options may now be OTM. If you hold these options with not much time remaining, suddenly being OTM may be problematic. delta and everything else move around. The one time I sold my UVXY puts for a small loss was when a 5:1 split happened and I had 2 weeks until maturity (trying to hit home runs)! Lesson: only go long with this strategy.

I thought on splits and reverse splits there was a "conservation of value" effect going on.  If you own a stock and there is a split, the value of your investment stays the same.  What you are saying is that there is no conservation going on when dealing with options?  Not only can you go from ITM to OTM, but your contracts no only represent 20 shares, so if you sell your options you will make less profit.  Seems like reverse splits are completely destructive to this strategy, at least for any tranches that get hit with a reverse split....cost of pursuing the strategy?

Financial.Velociraptor

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Re: Fun with VIX options
« Reply #59 on: October 01, 2017, 02:26:03 PM »

I thought on splits and reverse splits there was a "conservation of value" effect going on.  If you own a stock and there is a split, the value of your investment stays the same.  What you are saying is that there is no conservation going on when dealing with options?  Not only can you go from ITM to OTM, but your contracts no only represent 20 shares, so if you sell your options you will make less profit.  Seems like reverse splits are completely destructive to this strategy, at least for any tranches that get hit with a reverse split....cost of pursuing the strategy?

Conservation of value still applies.  If you are at the 25 strike and there is a 1:4 split, you now control 25 shares at 100.  Yahoo Finance is bugged on that point and continues to report the strike as 25.  Your broker should report the contracts as UVXY1, UVXY2, UVXY3 etc.  They still carry the original nomenclature but the additional digit after the ticker denotes the post split status.


starguru

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Re: Fun with VIX options
« Reply #60 on: October 01, 2017, 03:26:38 PM »

I thought on splits and reverse splits there was a "conservation of value" effect going on.  If you own a stock and there is a split, the value of your investment stays the same.  What you are saying is that there is no conservation going on when dealing with options?  Not only can you go from ITM to OTM, but your contracts no only represent 20 shares, so if you sell your options you will make less profit.  Seems like reverse splits are completely destructive to this strategy, at least for any tranches that get hit with a reverse split....cost of pursuing the strategy?

Conservation of value still applies.  If you are at the 25 strike and there is a 1:4 split, you now control 25 shares at 100.  Yahoo Finance is bugged on that point and continues to report the strike as 25.  Your broker should report the contracts as UVXY1, UVXY2, UVXY3 etc.  They still carry the original nomenclature but the additional digit after the ticker denotes the post split status.

Right but you can move from ITM to OTM on a split.  If value was conserved wouldn’t the number of shares AND the strike price on the contract change?


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Financial.Velociraptor

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Re: Fun with VIX options
« Reply #61 on: October 01, 2017, 05:22:57 PM »

Right but you can move from ITM to OTM on a split.  If value was conserved wouldn’t the number of shares AND the strike price on the contract change?


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You can't move from ITM to OTM based on a split/reverse-split.  If you hold the 25 contract pre-split, you control $2,500 of underlying: 25 dollars times 100 shares.  If there is a 1:4 split, you control 25 shares at a strike of 100.  Still $2,500 of underlying.  Yahoo Finance displays this incorrectly and creates a lot of confusion.  Your premium will not change after the split.  If you were holding options worth $1,300 before the split, they would still sell in the market for about $1,300 after the split.  And the liquidity to be found between the bid/ask would be little changed.  I think of it as a non-event.

trollwithamustache

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Re: Fun with VIX options
« Reply #62 on: October 02, 2017, 08:26:01 AM »

Sent from my iPhone using Tapatalk
.  I think of it as a non-event.

Non Event?  The splits are more of  a Milestone of the fascinating continued, relentless decay of these types of securities.

Pizzabrewer

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Re: Fun with VIX options
« Reply #63 on: October 02, 2017, 08:48:19 AM »
What platform are you trading these on?  TDAm only shows options available out to June 2018.

Financial.Velociraptor

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Re: Fun with VIX options
« Reply #64 on: October 02, 2017, 09:29:13 AM »
What platform are you trading these on?  TDAm only shows options available out to June 2018.

Interactive Brokers

starguru

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Re: Fun with VIX options
« Reply #65 on: October 02, 2017, 10:21:06 AM »
FV

when you put in a bid, do you do a "good until cancelled" order or is that a bad idea?

I just put in a bid for the Jan 2019 19 strike for $11.75.  The ask was 11.95 and I think it filled immediately. 

So what is the next step?  Should I put in some limit order to sell at 12.92 (gain of 10%)? 

Financial.Velociraptor

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Re: Fun with VIX options
« Reply #66 on: October 02, 2017, 02:50:02 PM »
FV

when you put in a bid, do you do a "good until cancelled" order or is that a bad idea?

I just put in a bid for the Jan 2019 19 strike for $11.75.  The ask was 11.95 and I think it filled immediately. 

So what is the next step?  Should I put in some limit order to sell at 12.92 (gain of 10%)?

I tried a GTC for the first time on today's sale.  I think I left some money on the table.  See today's blog post at: http://velociraptor.cc/blog/2017/10/02/update-uvxy-4/

As far as bidding, I usually go a nickle or so higher than the current bid.  You can then check how many contracts are being bid at the new bid.  If it is a "large" number, you are unlikely to get filled.  When you increase the bid to the point that only your shares are at the current bid, it is time to put on your poker face and wait.  You can usually get filled there or a nickle or so higher.  You did well by getting 20 cents or so below the ask though.

Selling around 10% is a fine plan.  I wouldn't use GTC after today's lesson though.

starguru

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Re: Fun with VIX options
« Reply #67 on: October 03, 2017, 11:02:48 AM »
FV

when you put in a bid, do you do a "good until cancelled" order or is that a bad idea?

I just put in a bid for the Jan 2019 19 strike for $11.75.  The ask was 11.95 and I think it filled immediately. 

So what is the next step?  Should I put in some limit order to sell at 12.92 (gain of 10%)?

I tried a GTC for the first time on today's sale.  I think I left some money on the table.  See today's blog post at: http://velociraptor.cc/blog/2017/10/02/update-uvxy-4/

As far as bidding, I usually go a nickle or so higher than the current bid.  You can then check how many contracts are being bid at the new bid.  If it is a "large" number, you are unlikely to get filled.  When you increase the bid to the point that only your shares are at the current bid, it is time to put on your poker face and wait.  You can usually get filled there or a nickle or so higher.  You did well by getting 20 cents or so below the ask though.

Selling around 10% is a fine plan.  I wouldn't use GTC after today's lesson though.

FV my question was about when purchasing the put.  Is it ok to have a GTC order, or should the order by more limited in time?  But it also applies to selling.  I read your article and am confused by

"I had a good till canceled sell order open on my UVXY puts at 12.55 which triggered this morning.  It is important to use a limit order and not pay the bid/ask spread.  But I don’t think I’ll use a good till canceled order again.  Contracts were going for 12.74 shortly after my shares cleared at open so it looks like I left some money on the table in exchange for some minor convenience."

So if you don't use a GTC what will you use?  Since this is a highly volatile security how can you know if you selling at the right time?  Isn't is possible to briefly cross your asking price, triggering your sell, and then immediately drop to under where your sell would trigger?

Financial.Velociraptor

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Re: Fun with VIX options
« Reply #68 on: October 03, 2017, 09:02:08 PM »
FV my question was about when purchasing the put.  Is it ok to have a GTC order, or should the order by more limited in time?  But it also applies to selling.  I read your article and am confused by

"I had a good till canceled sell order open on my UVXY puts at 12.55 which triggered this morning.  It is important to use a limit order and not pay the bid/ask spread.  But I don’t think I’ll use a good till canceled order again.  Contracts were going for 12.74 shortly after my shares cleared at open so it looks like I left some money on the table in exchange for some minor convenience."

So if you don't use a GTC what will you use?  Since this is a highly volatile security how can you know if you selling at the right time?  Isn't is possible to briefly cross your asking price, triggering your sell, and then immediately drop to under where your sell would trigger?

Ok, I see now.  It may just be bad psychology on my part.  I sold at 12.55 at open and saw 12.70-12.75 basically all day long after that.  You are of course right, it could have moved in the other direction after open.  I had predetermined 12.55 was a reasonable exit, a superb one really, and then got butthurt about making "only" 154.58% annualized.  Talk about first world problems.  I think since I have time to check in on my position daily, I'll set fresh limits daily instead of using GTC.  GTC might make more sense if you are still busy with career and can't babysit the market.  Or if you detest watching the market, which is something I happen to love.

hgjjgkj

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Re: Fun with VIX options
« Reply #69 on: October 11, 2017, 10:08:38 PM »
After a long wait to set up an IB account, I have finally placed an order. Tried to buy the Jan 19 15 strike put set a daily limit order at 8.96 with the Bid Ask bein 8.80 and 9.10. Curious to see how this goes

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Re: Fun with VIX options
« Reply #70 on: October 12, 2017, 10:43:18 AM »
Did you get a fill?

hgjjgkj

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Re: Fun with VIX options
« Reply #71 on: October 12, 2017, 09:57:09 PM »
I did not. spread now goes to 9.20. i have my bid at 9.12 for tomorrow. I am not great at understanding and working within spreads. Update: Still did not fill. I switched to using the dyanmic IB fill order. and I hope it just fills this way
« Last Edit: October 13, 2017, 07:38:11 PM by hgjjgkj »

tsukuba

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Re: Fun with VIX options
« Reply #72 on: October 15, 2017, 08:43:48 PM »
FV

when you put in a bid, do you do a "good until cancelled" order or is that a bad idea?

I just put in a bid for the Jan 2019 19 strike for $11.75.  The ask was 11.95 and I think it filled immediately. 

So what is the next step?  Should I put in some limit order to sell at 12.92 (gain of 10%)?

I tried a GTC for the first time on today's sale.  I think I left some money on the table.  See today's blog post at: http://velociraptor.cc/blog/2017/10/02/update-uvxy-4/

As far as bidding, I usually go a nickle or so higher than the current bid.  You can then check how many contracts are being bid at the new bid.  If it is a "large" number, you are unlikely to get filled.  When you increase the bid to the point that only your shares are at the current bid, it is time to put on your poker face and wait.  You can usually get filled there or a nickle or so higher.  You did well by getting 20 cents or so below the ask though.

Selling around 10% is a fine plan.  I wouldn't use GTC after today's lesson though.

Is this 10% enough?  This means you would need near to 10 wins like this to break even with one wipeout in the case the VIX gets active.

I'm noticing these contract prices for UVXY are not cheap.  Considering the contract prices, UVXY has to trend toward quite below the strike price to gain value in your options.  The trend right now is that it does, but there are certainly periods where UVXY is flat or the slope not sufficiently downward for the puts to gain value.

I'm not an options expert or anything.

starguru

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Re: Fun with VIX options
« Reply #73 on: October 16, 2017, 08:26:30 AM »
FV

when you put in a bid, do you do a "good until cancelled" order or is that a bad idea?

I just put in a bid for the Jan 2019 19 strike for $11.75.  The ask was 11.95 and I think it filled immediately. 

So what is the next step?  Should I put in some limit order to sell at 12.92 (gain of 10%)?

I tried a GTC for the first time on today's sale.  I think I left some money on the table.  See today's blog post at: http://velociraptor.cc/blog/2017/10/02/update-uvxy-4/

As far as bidding, I usually go a nickle or so higher than the current bid.  You can then check how many contracts are being bid at the new bid.  If it is a "large" number, you are unlikely to get filled.  When you increase the bid to the point that only your shares are at the current bid, it is time to put on your poker face and wait.  You can usually get filled there or a nickle or so higher.  You did well by getting 20 cents or so below the ask though.

Selling around 10% is a fine plan.  I wouldn't use GTC after today's lesson though.

Is this 10% enough?  This means you would need near to 10 wins like this to break even with one wipeout in the case the VIX gets active.

I'm noticing these contract prices for UVXY are not cheap.  Considering the contract prices, UVXY has to trend toward quite below the strike price to gain value in your options.  The trend right now is that it does, but there are certainly periods where UVXY is flat or the slope not sufficiently downward for the puts to gain value.

I'm not an options expert or anything.

Yes I had that same thought.  A few considerations:

1.  10% requires 10 wins to break even in the event of a wipeout.  Probably more than that factoring in trading costs.  But 15% only requires 6.5, and 20% only requires 5.

2.  The expiration date on these contracts is extremely long; it takes 12+ months to truly lose money on them. 

3.  I'm not sure that if the VIX shoots up, it probably starts declining again very quickly too.  One might be able to hedge by buying more puts in the event of a VIX spike, assuming one has capital to do this.

4.  I've been considering how to pipeline this effectively to reduce the risk of a complete wipeout.  Say I wanted to invest $12000 total.  I could buy one contract a every month for the farthest out expiry option.  If the VIX spikes a few might be at risk, but you are buying new contracts every month, so you might have increased chance of gain after a spike.  The trouble with the pipeline is you never know when you are going to sell any option. 

5.  I'm wondering if a better strategy is to wait say 45 days, and then if the gain is more than 10% take it.  If the gain is less than 10%, set a GTC limit for 10%.  If at any point gain is 25% or more, take it.    Im sort of making up numbers but the idea is see if you can make a >10% profit quickly, and then if you can't shoot for the 10%. 

My first GTC limit is close to hitting.  Im thinking one or two days of VIX falling should do it.

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Re: Fun with VIX options
« Reply #74 on: October 16, 2017, 03:20:24 PM »
The number of wins is probably not relevant if you're rolling when you win. The frequency of those wins is more important.

This is only a few days in, but so far the option closest to the money was the biggest winner: https://cl.ly/1L1V3A3i3K3W

I expect there's a discontinuity here that can be exploited, but finding a good data source for historical options pricing seems to be impossible for us little people.

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Re: Fun with VIX options
« Reply #75 on: October 17, 2017, 07:01:30 AM »
Is this 10% enough?  This means you would need near to 10 wins like this to break even with one wipeout in the case the VIX gets active.

I'm noticing these contract prices for UVXY are not cheap.  Considering the contract prices, UVXY has to trend toward quite below the strike price to gain value in your options.  The trend right now is that it does, but there are certainly periods where UVXY is flat or the slope not sufficiently downward for the puts to gain value.

I'm not an options expert or anything.

I think a true 100% wipeout is extraordinarily unlikely.   I mean there is a non-zero chance but in my experience, after a roughly double in the underlying, I still made almost 16% annualized by just being patient. 

As with any investment, I think reasonable allocation size is key.  It would be reckless to do this with 100% or even 50% of your portfolio.  I allocate 10% which is something I can afford to lose and still remain FIRE.

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Re: Fun with VIX options
« Reply #76 on: October 17, 2017, 11:41:44 PM »
Is this 10% enough?  This means you would need near to 10 wins like this to break even with one wipeout in the case the VIX gets active.

I'm noticing these contract prices for UVXY are not cheap.  Considering the contract prices, UVXY has to trend toward quite below the strike price to gain value in your options.  The trend right now is that it does, but there are certainly periods where UVXY is flat or the slope not sufficiently downward for the puts to gain value.

I'm not an options expert or anything.

I think a true 100% wipeout is extraordinarily unlikely.   I mean there is a non-zero chance but in my experience, after a roughly double in the underlying, I still made almost 16% annualized by just being patient. 

As with any investment, I think reasonable allocation size is key.  It would be reckless to do this with 100% or even 50% of your portfolio.  I allocate 10% which is something I can afford to lose and still remain FIRE.

Hi F.-V.,
Thanks a lot for all your information on this thread--very instructive.
What is your typical non-annualized % gain you are targeting before selling (following up on starguru's Reply #73 just above)

Best regards-

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Re: Fun with VIX options
« Reply #77 on: October 18, 2017, 11:28:11 AM »
Hi F.-V.,
Thanks a lot for all your information on this thread--very instructive.
What is your typical non-annualized % gain you are targeting before selling (following up on starguru's Reply #73 just above)

Best regards-

I usually buy about 30% out of the money and sell when at the money rather than target a profit percentage.  The gross percentage is too volatile because it is influenced by so many factors.  The long term decay is the reliable part.  Below are the gross percentage gains, expressed as a decimal from my last five completed trades:

0.03539823
0.05019305
0.115853659
0.096585366
0.084701815

starguru

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Re: Fun with VIX options
« Reply #78 on: October 18, 2017, 12:02:45 PM »
Hi F.-V.,
Thanks a lot for all your information on this thread--very instructive.
What is your typical non-annualized % gain you are targeting before selling (following up on starguru's Reply #73 just above)

Best regards-

I usually buy about 30% out of the money and sell when at the money rather than target a profit percentage.  The gross percentage is too volatile because it is influenced by so many factors.  The long term decay is the reliable part.  Below are the gross percentage gains, expressed as a decimal from my last five completed trades:

0.03539823
0.05019305
0.115853659
0.096585366
0.084701815

So you are selling with a 3% gain sometimes?  Does that include trading costs?

Financial.Velociraptor

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Re: Fun with VIX options
« Reply #79 on: October 18, 2017, 05:01:03 PM »


So you are selling with a 3% gain sometimes?  Does that include trading costs?

That was 3% gross.  It was only over 48 days so 26.93% annualized.  That does not include trading costs but my commission at Interactive Brokers are trivial.  Usually 75 cents per contract.

hgjjgkj

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Re: Fun with VIX options
« Reply #80 on: October 18, 2017, 08:29:46 PM »
For what its worth i finally got in. 15@ 9.85. above the ask somehow. Got absolutely crushed by the spread

tsukuba

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Re: Fun with VIX options
« Reply #81 on: October 18, 2017, 09:45:42 PM »
Hi F.-V.,
Thanks a lot for all your information on this thread--very instructive.
What is your typical non-annualized % gain you are targeting before selling (following up on starguru's Reply #73 just above)

Best regards-

I usually buy about 30% out of the money and sell when at the money rather than target a profit percentage.  The gross percentage is too volatile because it is influenced by so many factors.  The long term decay is the reliable part.  Below are the gross percentage gains, expressed as a decimal from my last five completed trades:

0.03539823
0.05019305
0.115853659
0.096585366
0.084701815

Thank you for clarifying the picture, F.-V.
Best wishes-

starguru

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Re: Fun with VIX options
« Reply #82 on: October 19, 2017, 11:28:43 AM »


So you are selling with a 3% gain sometimes?  Does that include trading costs?

That was 3% gross.  It was only over 48 days so 26.93% annualized.  That does not include trading costs but my commission at Interactive Brokers are trivial.  Usually 75 cents per contract.

Hmm, maybe I should rethink my trying to make 10% strategy.  Fidelity is charging 4.95 + .65 per contract, so at some point Fidelity is cheaper (around 11 or 12 contracts) but I am not buying that much.  If the strategy is to make $30 at a time trading costs have to be considered.

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Re: Fun with VIX options
« Reply #83 on: November 04, 2017, 03:20:26 PM »
That is about 30% return over just 9 months of the year.  I expect to sell another put at 12.55 soon for a profit of 2,646 and the holding period will likely be shorter than 30 days.  The WORST I have ever done with this strategy is 16% annualized. 
Financial.Velociraptor,

Thank you for your thorough explanation of this interesting
trade.

I found it so intriguing that I was actually motivated to
register on this site just to pose a question.

If I've digested your thoughts correctly, it seems each
trade is oriented toward achieving an approximate x%
annualized return.  Then you close it for a profit, and
turn around immediately and open another position.
Rinse and repeat.

I might have oversimplified it a bit, but that's the rough
gist of my takeaway. If I've understood it fairly correctly,
wouldn't it make sense to add a minimum 3 month
holding period into the discipline; or at least 3 months
between opening positions?


My thoughts are that a new LEAP expiry opens up only
every 3 months.  If you close a position earlier than 3
months, and then immediately open another position
with the same expiry as the one you just closed, aren't
you really just churning trading fees without reducing
your risk by rolling out to a longer-dated LEAP?

Maybe I'm missing something fundamental.  Perhaps
the 2nd position would be at another strike, and would
therefore be more advantageous?  Or could be gotten
at a lower volatility if you're prepared to wait a few
days to put the new trade on?

Any thoughts you might have would be appreciated!
« Last Edit: November 04, 2017, 04:45:56 PM by ILikeDividends »

Financial.Velociraptor

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Re: Fun with VIX options
« Reply #84 on: November 04, 2017, 05:41:18 PM »
That is about 30% return over just 9 months of the year.  I expect to sell another put at 12.55 soon for a profit of 2,646 and the holding period will likely be shorter than 30 days.  The WORST I have ever done with this strategy is 16% annualized. 
Financial.Velociraptor,

Thank you for your thorough explanation of this interesting
trade.

I found it so intriguing that I was actually motivated to
register on this site just to pose a question.

If I've digested your thoughts correctly, it seems each
trade is oriented toward achieving an approximate x%
annualized return.  Then you close it for a profit, and
turn around immediately and open another position.
Rinse and repeat.

I might have oversimplified it a bit, but that's the rough
gist of my takeaway. If I've understood it fairly correctly,
wouldn't it make sense to add a minimum 3 month
holding period into the discipline; or at least 3 months
between opening positions?


My thoughts are that a new LEAP expiry opens up only
every 3 months.  If you close a position earlier than 3
months, and then immediately open another position
with the same expiry as the one you just closed, aren't
you really just churning trading fees without reducing
your risk by rolling out to a longer-dated LEAP?

Maybe I'm missing something fundamental.  Perhaps
the 2nd position would be at another strike, and would
therefore be more advantageous?  Or could be gotten
at a lower volatility if you're prepared to wait a few
days to put the new trade on?

Any thoughts you might have would be appreciated!

Ilikedividends,

You have the concept right.  In my experience new LEAPs for UVXY only open in November.  What I'm really doing is trying to balance risk and reward.  I go about a third out of the money and expect to hold at least a month under normal circumstances.  I could earn a higher annualized return by going even further out of the money but only at the "cost" of increasing my risk.  Note I'm not defining risk in the academic finance way of volatility but in terms of the loss of investment.  There is a non-zero chance with this trade that I could end up with a 100% loss of investment.  Choosing a high(er) strike price lowers this risk. 

What you don't want to do is hold past the point the option moves into the money.  At that point, your time value as a percentage of the strike is falling instead of rising.  Sure, you are picking up intrinsic value but there is "more meat on the bone" if you roll down (and out if a later expiry comes available).  Likewise, you could increase returns by buying puts with much shorter expiries but this comes at increased risk of loss of capital.  I might be trying that if I was still in the accumulation phase but as a FIRE person, preservation of capital is concern number one.  So basically, to hold the contract longer, I'd have to go further out of the money and increase risk.

As far as trying to 'time' volatility by waiting a few days before rolling, since the underlying is typically falling to approach the strike on the date of sell, you already are at a low volatility point in time.  I prefer maximizing my time in the market instead. 

And trading costs are immaterial for me.  I am at Interactive Brokers and usually pay 70 cents or less per contract.  Against a 500 dollar or more contract it just doesn't matter even when you pay that twice to round trip the trade.

Hope this helps.

ILikeDividends

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Re: Fun with VIX options
« Reply #85 on: November 04, 2017, 06:21:50 PM »
In my experience new LEAPs for UVXY only open in November.

Hm.  When I look at 2018 (not for opening a position, just for comparison), I see expiries in Jan, Mar, and Jun,
but curiously, no expiries in Sept.  It was that which lead me to believe that new LEAPS opened every 3 months
(with the exception of the last 3 months of the calendar year)  Of course correlation does not equal causation, so my assumption could be groundless.  I suppose, in this time frame, those 2018 expiries could just be quarterly options opened every 12 months or so.

What you don't want to do is hold past the point the option moves into the money.
Ah, that makes sense!  In the unlikely event that I am correct about being able to roll out to a later expiry every quarter, then it would seem reasonable to pinpoint my exit point with a rule of (at the money OR a new expiry is available), but only so long as the exit can be done profitably.  Hmm, actually, even at break-even, rolling out would seem advisable, even if only to reduce the risk of 100% loss by another 3 months (or by 12 months, if new LEAPS are listed annually).

If a new expiry is available, then I roll down (if possible) and out; otherwise, I just roll down to the ~30% OTM strike after exiting the ATM (or near-ATM--to allow room for artistry) strike. These rules would seem applicable regardless of whether new LEAPS are available quarterly or annually.

Sound reasonable?

Hope this helps.
It most assuredly does.  Every post you make on this trade brings more clarity.

Thanks!
« Last Edit: November 04, 2017, 09:48:18 PM by ILikeDividends »

starguru

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Re: Fun with VIX options
« Reply #86 on: November 05, 2017, 08:51:37 AM »
What you don't want to do is hold past the point the option moves into the money.  At that point, your time value as a percentage of the strike is falling instead of rising.  Sure, you are picking up intrinsic value but there is "more meat on the bone" if you roll down (and out if a later expiry comes available).  Likewise, you could increase returns by buying puts with much shorter expiries but this comes at increased risk of loss of capital.  I might be trying that if I was still in the accumulation phase but as a FIRE person, preservation of capital is concern number one.  So basically, to hold the contract longer, I'd have to go further out of the money and increase risk.

Well crap, I never got the point where you are not supposed to hold past when the option moves into the money.   I think you are saying that "delta" on the position is higher when the option is out is out the money.   

It's interesting that my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 (100 SHS) options have only gained 3%, while my PUT (UVXY) PROSHARES TR II JAN 18 19 $19 (100 SHS)  position is up about 7%.  I bought both when the price of the underlying was $1 higher than the strike.  Maybe Ill sell both positions and rebuy on a strike that is more OTM.

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Re: Fun with VIX options
« Reply #87 on: November 05, 2017, 08:52:27 AM »

Hm.  When I look at 2018 (not for opening a position, just for comparison), I see expiries in Jan, Mar, and Jun,
but curiously, no expiries in Sept.  It was that which lead me to believe that new LEAPS opened every 3 months
(with the exception of the last 3 months of the calendar year)  Of course correlation does not equal causation, so my assumption could be groundless.  I suppose, in this time frame, those 2018 expiries could just be quarterly options opened every 12 months or so.


Somewhere in November the most distant January LEAP comes out.  Shorter duration contracts come out interstitially but if you want the longest dated put, you'll be buying a January 20xx, issued each mid November.

Glad I could help.

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Re: Fun with VIX options
« Reply #88 on: November 05, 2017, 08:57:09 AM »
What you don't want to do is hold past the point the option moves into the money.  At that point, your time value as a percentage of the strike is falling instead of rising.  Sure, you are picking up intrinsic value but there is "more meat on the bone" if you roll down (and out if a later expiry comes available).  Likewise, you could increase returns by buying puts with much shorter expiries but this comes at increased risk of loss of capital.  I might be trying that if I was still in the accumulation phase but as a FIRE person, preservation of capital is concern number one.  So basically, to hold the contract longer, I'd have to go further out of the money and increase risk.

Well crap, I never got the point where you are not supposed to hold past when the option moves into the money.   I think you are saying that "delta" on the position is higher when the option is out is out the money.   

It's interesting that my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 (100 SHS) options have only gained 3%, while my PUT (UVXY) PROSHARES TR II JAN 18 19 $19 (100 SHS)  position is up about 7%.  I bought both when the price of the underlying was $1 higher than the strike.  Maybe Ill sell both positions and rebuy on a strike that is more OTM.

Maybe I wasn't clear?  Time value increases (all other things held equal) as you approach the strike price.  This holds true whether you start out of the money or in the money.  You curiously have more time value at the strike than you do 5 dollars in the money.  Likewise, you have more time value at the strike than you do 5 dollars out of the money.  The guys who figured that out won a Nobel Prize for their effort. 

ILikeDividends

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Re: Fun with VIX options
« Reply #89 on: November 05, 2017, 11:10:08 AM »

Hm.  When I look at 2018 (not for opening a position, just for comparison), I see expiries in Jan, Mar, and Jun,
but curiously, no expiries in Sept.  It was that which lead me to believe that new LEAPS opened every 3 months
(with the exception of the last 3 months of the calendar year)  Of course correlation does not equal causation, so my assumption could be groundless.  I suppose, in this time frame, those 2018 expiries could just be quarterly options opened every 12 months or so.


Somewhere in November the most distant January LEAP comes out.  Shorter duration contracts come out interstitially but if you want the longest dated put, you'll be buying a January 20xx, issued each mid November.

Glad I could help.
Serendipity has been a good friend of mine on many occasions over the course of my life.

Stumbling into this forum, and into this thread specifically, mere days before the new LEAPS come out for 2020, I expect will prove to have been yet one more in a series of happy coincidences.

I expect the 20s will decay more slowly than the 19s, a definite plus with this trade, but the main appeal to me is that it will give me 24+ months of runway to start out with on my first trade.  That's well worth waiting for a few more days.

I will begin my first experiment with this trade in a week or two with the Jan 20s.

Chow down, Raptor!  And thanks again. I'd rather be lucky, than smart.  ;)

 

« Last Edit: November 05, 2017, 01:32:06 PM by ILikeDividends »

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Re: Fun with VIX options
« Reply #90 on: November 05, 2017, 06:16:18 PM »


Chow down, Raptor!  And thanks again. I'd rather be lucky, than smart.  ;)

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Re: Fun with VIX options
« Reply #91 on: November 06, 2017, 08:21:34 AM »
What you don't want to do is hold past the point the option moves into the money.  At that point, your time value as a percentage of the strike is falling instead of rising.  Sure, you are picking up intrinsic value but there is "more meat on the bone" if you roll down (and out if a later expiry comes available).  Likewise, you could increase returns by buying puts with much shorter expiries but this comes at increased risk of loss of capital.  I might be trying that if I was still in the accumulation phase but as a FIRE person, preservation of capital is concern number one.  So basically, to hold the contract longer, I'd have to go further out of the money and increase risk.

Well crap, I never got the point where you are not supposed to hold past when the option moves into the money.   I think you are saying that "delta" on the position is higher when the option is out is out the money.   

It's interesting that my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 (100 SHS) options have only gained 3%, while my PUT (UVXY) PROSHARES TR II JAN 18 19 $19 (100 SHS)  position is up about 7%.  I bought both when the price of the underlying was $1 higher than the strike.  Maybe Ill sell both positions and rebuy on a strike that is more OTM.

Maybe I wasn't clear?  Time value increases (all other things held equal) as you approach the strike price.  This holds true whether you start out of the money or in the money.  You curiously have more time value at the strike than you do 5 dollars in the money.  Likewise, you have more time value at the strike than you do 5 dollars out of the money.  The guys who figured that out won a Nobel Prize for their effort.

Why does time value matter in this at all?

Its weird, my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 shares are now -%3 even though they are ITM, as the last sale price was 10.6, when I paid 10.77.  I'm wondering how this happened and if I messed up the buy by bidding to close to the ask. 

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Re: Fun with VIX options
« Reply #92 on: November 06, 2017, 09:02:27 AM »
What you don't want to do is hold past the point the option moves into the money.  At that point, your time value as a percentage of the strike is falling instead of rising.  Sure, you are picking up intrinsic value but there is "more meat on the bone" if you roll down (and out if a later expiry comes available).  Likewise, you could increase returns by buying puts with much shorter expiries but this comes at increased risk of loss of capital.  I might be trying that if I was still in the accumulation phase but as a FIRE person, preservation of capital is concern number one.  So basically, to hold the contract longer, I'd have to go further out of the money and increase risk.

Well crap, I never got the point where you are not supposed to hold past when the option moves into the money.   I think you are saying that "delta" on the position is higher when the option is out is out the money.   

It's interesting that my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 (100 SHS) options have only gained 3%, while my PUT (UVXY) PROSHARES TR II JAN 18 19 $19 (100 SHS)  position is up about 7%.  I bought both when the price of the underlying was $1 higher than the strike.  Maybe Ill sell both positions and rebuy on a strike that is more OTM.

Maybe I wasn't clear?  Time value increases (all other things held equal) as you approach the strike price.  This holds true whether you start out of the money or in the money.  You curiously have more time value at the strike than you do 5 dollars in the money.  Likewise, you have more time value at the strike than you do 5 dollars out of the money.  The guys who figured that out won a Nobel Prize for their effort.

Why does time value matter in this at all?

Its weird, my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 shares are now -%3 even though they are ITM, as the last sale price was 10.6, when I paid 10.77.  I'm wondering how this happened and if I messed up the buy by bidding to close to the ask.

Yea, check the bid-ask spread. Your brokerage probably quotes the value of your long options as the bid price, and the value of your short options as the ask price. This becomes confusing when the bid-ask spread is 10-20% apart! Actually, the value you could trade your positions for at any given moment is some hypothetical number in between the bid-ask. Some of my UVXY puts are quoted as "down" 11% today, even as UVXY has fallen 1%! Upon closer analysis, I'm actually up slightly.

Financial.Velociraptor

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Re: Fun with VIX options
« Reply #93 on: November 06, 2017, 10:30:34 AM »

Why does time value matter in this at all?

Its weird, my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 shares are now -%3 even though they are ITM, as the last sale price was 10.6, when I paid 10.77.  I'm wondering how this happened and if I messed up the buy by bidding to close to the ask.

When you are out of the money, the entire premium is time value.  If you do like I do and target to sell at the money, your entire cost and profit are determined by time value.  If you buy or hold into the money, intrinsic value starts to become part of the equation and that can get a little messy mathematically.

In the case of your trade, time value can be a higher or lower percentage of the strike at any time based on the current volatility.  This can result in some peculiar short term price behavior.  I've been known to sell into sharp spikes in volatility because even though the underlying was moving against me, premiums were inflating.  There are a lot of moving parts here and the only piece that is nearly certain is the long term decay of the underlying due to contango in the futures markets.  Also, see what ChpBstrd says above.

starguru

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Re: Fun with VIX options
« Reply #94 on: November 06, 2017, 02:34:52 PM »

Why does time value matter in this at all?

Its weird, my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 shares are now -%3 even though they are ITM, as the last sale price was 10.6, when I paid 10.77.  I'm wondering how this happened and if I messed up the buy by bidding to close to the ask.

When you are out of the money, the entire premium is time value.  If you do like I do and target to sell at the money, your entire cost and profit are determined by time value.  If you buy or hold into the money, intrinsic value starts to become part of the equation and that can get a little messy mathematically.

In the case of your trade, time value can be a higher or lower percentage of the strike at any time based on the current volatility.  This can result in some peculiar short term price behavior.  I've been known to sell into sharp spikes in volatility because even though the underlying was moving against me, premiums were inflating.  There are a lot of moving parts here and the only piece that is nearly certain is the long term decay of the underlying due to contango in the futures markets.  Also, see what ChpBstrd says above.

Ah ok.  That might explain some of the weirdness I am seeing on my 17 strike position.

So I successfully unloaded my 19 strike position.  I bought at 11.81 and sold at 12.85.  According to a spreadsheet I put together thats an 8.33% return.  The time between sell and buy was 35 days (thanks datedif function).  If I implemented annualized return correctly, I get 141%.  As soon as I get rid of my 17% strike position Ill open a new position 30% OTM and then sell at the strike. 

ILikeDividends

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Re: Fun with VIX options
« Reply #95 on: November 06, 2017, 02:52:49 PM »

So I successfully unloaded my 19 strike position.  I bought at 11.81 and sold at 12.85.  According to a spreadsheet I put together thats an 8.33% return.  The time between sell and buy was 35 days (thanks datedif function).  If I implemented annualized return correctly, I get 141%.  As soon as I get rid of my 17% strike position Ill open a new position 30% OTM and then sell at the strike.

(365/35)*8.33%=86.87%

If you want to be real nit-picky, replace 365 with 365.2422.

That still doesn't suck!  Congrats.  ;)
« Last Edit: November 06, 2017, 02:56:51 PM by ILikeDividends »

starguru

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Re: Fun with VIX options
« Reply #96 on: November 06, 2017, 02:58:58 PM »

So I successfully unloaded my 19 strike position.  I bought at 11.81 and sold at 12.85.  According to a spreadsheet I put together thats an 8.33% return.  The time between sell and buy was 35 days (thanks datedif function).  If I implemented annualized return correctly, I get 141%.  As soon as I get rid of my 17% strike position Ill open a new position 30% OTM and then sell at the strike.

(365/35)*8.33%=86.87%

If you want to be real nit-picky, replace 365 with 365.2422.

That still doesn't suck!  Congrats.  ;)

Hmm I used the formula I found here

https://www.google.com/amp/s/m.wikihow.com/Calculate-Annualized-Portfolio-Return%3famp=1

Section 3 “annualized equivalent”.  I probably entered the formula incorrectly into my spreadsheet.  Still doesn’t suck.  But it was only 1 contract so the actual return was <$100.


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ILikeDividends

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Re: Fun with VIX options
« Reply #97 on: November 06, 2017, 03:07:00 PM »

So I successfully unloaded my 19 strike position.  I bought at 11.81 and sold at 12.85.  According to a spreadsheet I put together thats an 8.33% return.  The time between sell and buy was 35 days (thanks datedif function).  If I implemented annualized return correctly, I get 141%.  As soon as I get rid of my 17% strike position Ill open a new position 30% OTM and then sell at the strike.

(365/35)*8.33%=86.87%

If you want to be real nit-picky, replace 365 with 365.2422.

That still doesn't suck!  Congrats.  ;)

Hmm I used the formula I found here

https://www.google.com/amp/s/m.wikihow.com/Calculate-Annualized-Portfolio-Return%3famp=1


Section 3 “annualized equivalent”.  I probably entered the formula incorrectly into my spreadsheet.  Still doesn’t suck.  But it was only 1 contract so the actual return was <$100.


Sent from my iPhone using Tapatalk

I only lightly skimmed the article, but at first blush it appeared to be factoring a compounded rate of return, which I'm assuming wasn't what you were trying to do.  My formula, above, is just a simple annualized return, without factoring in any compounding.

Since your position sizes, holding periods, and actual returns, over time, can vary wildly, I think compounding a rate of return over a year won't yield very meaningful results.

Stated differently, if you made $100 investment every 35 days, withdrawing a profit of $8.33 every time you did it,
you would be able to do that just over (by a fraction) 10 times per year.  At the end of the year, you would have $186.87 (give or take) by adding your principle to all the profits you withdrew every period.

But that assumes a fixed investment, a fixed period, and a fixed rate of return.  You could compound that by removing the fixed investment assumption, but you'd still be assuming a fixed period and a fixed rate of return, which I don't think would tell you anything meaningful about what that one single trade returned on an annualized basis.

There probably isn't really a wrong answer, compounded vs simple.  I just think the simple method makes it easier to compare two trades having different sizes, different holding periods, and different returns.  Bottom line is that the simple method is, well, simple.  Easier to do, and easier to get my head around.  ;)
« Last Edit: November 06, 2017, 03:43:41 PM by ILikeDividends »

hgjjgkj

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Re: Fun with VIX options
« Reply #98 on: November 06, 2017, 03:27:14 PM »
 I bought my 15 strike Put at 9.85 when it was OTM. Now it is ITM and still not close to 9.85 (I think it is around 9.60 tops) not sure what I did wrong, but wondering if anyone has any feedback. Almost every contract was up at least a % today save for mine :(

starguru

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Re: Fun with VIX options
« Reply #99 on: November 06, 2017, 04:04:57 PM »

So I successfully unloaded my 19 strike position.  I bought at 11.81 and sold at 12.85.  According to a spreadsheet I put together thats an 8.33% return.  The time between sell and buy was 35 days (thanks datedif function).  If I implemented annualized return correctly, I get 141%.  As soon as I get rid of my 17% strike position Ill open a new position 30% OTM and then sell at the strike.

(365/35)*8.33%=86.87%

If you want to be real nit-picky, replace 365 with 365.2422.

That still doesn't suck!  Congrats.  ;)

Hmm I used the formula I found here

https://www.google.com/amp/s/m.wikihow.com/Calculate-Annualized-Portfolio-Return%3famp=1


Section 3 “annualized equivalent”.  I probably entered the formula incorrectly into my spreadsheet.  Still doesn’t suck.  But it was only 1 contract so the actual return was <$100.


Sent from my iPhone using Tapatalk

I only lightly skimmed the article, but at first blush it appeared to be factoring a compounded rate of return, which I'm assuming wasn't what you were trying to do.  My formula, above, is just a simple annualized return, without factoring in any compounding.

Since your position sizes, holding periods, and actual returns, over time, can vary wildly, I think compounding a rate of return over a year won't yield very meaningful results.

Stated differently, if you made $100 investment every 35 days, withdrawing a profit of $8.33 every time you did it,
you would be able to do that just over (by a fraction) 10 times per year.  At the end of the year, you would have $186.87 (give or take) by adding your principle to all the profits you withdrew every period.

But that assumes a fixed investment, a fixed period, and a fixed rate of return.  You could compound that by removing the fixed investment assumption, but you'd still be assuming a fixed period and a fixed rate of return, which I don't think would tell you anything meaningful about what that one single trade returned on an annualized basis.

There probably isn't really a wrong answer, compounded vs simple.  I just think the simple method makes it easier to compare two trades having different sizes, different holding periods, and different returns.  Bottom line is that the simple method is, well, simple.  Easier to do, and easier to get my head around.  ;)


I agree that annualized number is mostly fluff for the reasons you mentioned.  The only number that matters is the amount you made compared against the amount you invested.   Still, I'm perturbed that I can't get that formula to spit out the right value.  You have to search the page for the correct calculation, search for "annualized equivalent".