So you are short about 600k of notional. that's pretty big in my opinion but unlikely to kill you. You could realistically see a 10% type drawdown on that.
Karen the Supertrader - TastyTrade Hybrid Experiment
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So you are short about 600k of notional. that's pretty big in my opinion but unlikely to kill you. You could realistically see a 10% type drawdown on that.
Implied borrow going out to Jan17 is 1.5% yield (like 30bps cost). and that's hitting the bid on a jan17 combo.
I certainly have exposure if there is a sudden crash. I accept the risk. The "plan" is to liquidate all positions at a 5% drawdown. That's how I have it written on paper. We shall see how that plan works in the heat of battle. Nonetheless, I think it is good to have rules of guidance in place to help me deal with the emotional aspects of trading this strategy.
5% drawdown in equity or market gap event?
I agree it's good to have a plan. You should study your pnl for various gap events: -2,-5, -10 and -20% (all with some vol increase assumption). We all know it's unlikely you will see a 20% overnight selloff and will probably see a few 10% selloffs in your lifetime, but it's good to know what your convexity risks are. You can decide how much of that gap risk you want to take on.
Is that the general borrow rate or the specific rate for that ETF. Different stocks have different borrow rates. I seem to recall in the past it was north of 10% but that number moves up and down as shares become harder to locate.
Borrow rate for the VXX implied by the jan17 options.
That number changes a lot. But sure, if one can get a locate and attractive rates I'm indifferent to VXX or XIV. I wasn't making a stock recommendation, I was posing the question if one simply wants to sell vol, there might be a better way to do it then then making 20 to 40 transactions per month across 3 different products along with tax consequences and commissions.
Completely off topic, but I have not seen VXX borrow rate above 1.5% since 2011 - if there is juice in the borrow rate, you can arb it via VIX futures. It's a pain (since you are rolling it daily ) but at some rate it makes sense.
On topic, I think the OP is carrying a bit too much risk for the strategy. Unless he has cash waiting in the wings in case of a vol blowup. Just an educated IMHO.
I don't know how reliable this post is but this guy claims the lending rate at IB for UVXY was 15% as recent as last year.
https://www.reddit.com/r/TradingForAdults/comments/3dk163/trading_the_vix_perpetual_short_edition/
I know that's not VXX but I seem to recall very high lending rates on all volatility related ETFs. This is on top of their overall cost of borrowing which may only be 1.9%.
UVXY has a higher borrow as to most of the 2x and 3x etns. Current borrow on UVXY is about 5-6%. That's an all in price if you trade the synthetic. a particular broker might charge you more for a locate but unless you need the actual physical shares you are better off just trading in the synthetic market. Locates are a pretty opaque business and lightly regulated.
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