Your responses to the previous one gave me lots to think over. And apologies for the lack of data.
Here's another one. Naked short LEAPS call on UVXY expiring on 1/23 with a strike of 75 selling for 9.50.
Yes, I know the risk here for a vol spike, but considering the time embedded in the option and the underlying's proclivity to spike and crash and revert to the mean, collecting a grand for a sliver of portfolio margin (1200 or so) is almost double your money play for 15 months.
Thoughts?
oh boy, you have no idea what you're getting yourself into...
First of all LEAPS have massive vega and volga. Since you're selling convexity you'll be in for an extremely nasty surprise once that VIX spikes, because options are still priced via supply and demand and some or more people will think that owning your VIX calls might be a good idea.
Second, you are also playing on the UVXY term structure because you are basically selling a part of a 15 month forward. Have you calculated the forward price via the ATM synthetic? That's what you are betting on, not the current UVXY price.
Third, these ETFs mimic daily returns which means it will decay very fast when the VIX chops up and down, but will hit you in the pp really hard once you get a couple of strong moves in the same direction a couple of days in a row.
So you are basically selling a downside convexity via a derivative (option) of a derivative(forward) of an ETF that invests in derivatives (VIX futures) which are based on an index which constituents are dynamically calculated baskets of derivatives of an equity index. And the fun thing is: None of these derivatives are delta one
The parameters that drive your P/L are:
- vol term structure of the index options
- skew of the index options
- vol level of index options
- correlation of the equity index constituents
These influence the VIX which influence the price of VIX futures
- Forward curve of the VIX futures
- autocorrelation of the weighted VIX futures basket
These two influence the UVXY spot price
- vol term structure of the UVXY options
- vol skew of the UXVY options
- vol level of the UVXY options
These three influence the options on UVXY
No offense, but you don't look like a guy who understands half of the things and I can tell you that looking at an UXVY chart to spot a level and bet it won't go there is not the way you trade vol of vol.
Stay away from this! Even if you win a couple of these trades by luck you'll get confident, size up and blow up royally once these trades bite. Promised!
