So selling vertical call spreads with a great that 70% probability of success ?
Selling calls on UVXY....OTM
- Thread starter treker5150
- Start date
Buying a put spread or selling a call spread or even buying SVXY. The important thing is why are you entering the trade. A good example was Trump's press conference....as he was speaking SVXY sold off...good time to buy...the world wasn't coming to end...banks weren't failing. As soon as he shut his mouth it went back up. Those are good r/r trades.
This is one small retail trader's experience with real money: When I started trading options back in 2013, for six months I exclusively traded covered calls and cash secured puts, ~ a hundred to two hundred trades a month on equities I owned. I essentially did it mechanically, OTM on a schedule. Net result was I did worst than buy & hold. So effectively I loss money. I had to abandon the strategy and went in a different direction.Hey y'all
I know this has probably been asked 1million times but what are yalls opinion on selling OTM calls on UVXY? I currently am paper trading the idea in my account. I sold an April 30 call for 1.23 credit. With the decay of the ETF and time decay of the option seems to be an "edge" ??. Also seems as if puts are really cheap and calls really expensive ?
Thxs
Lessons for me and perhaps a reference point for you: Selling options without any knowledge of the underlying and knowledge of volatility is a fool's game. There is no substitute for skill and knowledge. I still short options but don't do it on a schedule, only when I strongly believe in a direction. So far it is profitable this way. But of course we are in the middle of a bull market so even a retail guy like me could make some easy money and the apparent easy money is attracting a lot of small retail traders like me to options.
And ETF, time decay are not edges.
Good luck.
How do you get to that probability?
Depending how far out, it might be even a higher succes rate... but as with any probability, the price is equivalent to it. You will notice that, although call might look relatively expensive, the call spreads are quite low compared to the risk. A UVXY June 25-30 call spread is only about 70 cents.... for a 5 dollar spread... so risk of 4.30. And that spread can be ITM quite quickly.
Don't just throw in a completely unfounded nonsense statement, that will not help you in your trading mate...
Ok, let's say you determined that you have 70% probability to make $100 per spread.
Then, we say there is a 30% percent probability you will loose $233.33333 per spread.
How much money will you make not counting commissions and fees? zero.
Do you really think your losses will be less than $233.33?
Go ahead and structure a call spread that pays you $100 and see how much your possible loss is. I bet it is much, much more than $233.33. And, imagine taking that hit 3 of 10 times.
My apologies ahead of time, if my math is kaka again.
There will be a time when selling call spreads or buying vertical spreads will make sense against the UVXY. Based on my research, when we see a spike in vols and the UVXY explodes upwards and your broker has no shares left to sell short, it's time to put on the trade.
Time is key to all trade success and in this scenario, it requires a two month time horizon although that seems excessive. Based on my analysis, if you put on a vertical spread to avoid margin calls and lack of stock to borrowe for two months, it works exceptionally well. Patience.
It happens a couple times a year at best.
Time is key to all trade success and in this scenario, it requires a two month time horizon although that seems excessive. Based on my analysis, if you put on a vertical spread to avoid margin calls and lack of stock to borrowe for two months, it works exceptionally well. Patience.
It happens a couple times a year at best.
What does my broker not having shares left to sell short have to do with an ETF like this?
When vols explode and UVXY jumped from 25 to 90, you want to sell short the UVXY ETF but the broker would not offer the stock - none to borrow. This always happens at the top when everyone is already short and getting squeezed. The broker increases margin and refuses to loan stock out so you can get short. Probably because their facilitator is caught short like everyone else and they want to give them the stock instead of retail customers. The alternative is to buy put verticals or sell call verticals. You don't want to just buy puts as the extrinsic is really crazy so simply do the verticals.
Hey y'all
I know this has probably been asked 1million times but what are yalls opinion on selling OTM calls on UVXY? I currently am paper trading the idea in my account. I sold an April 30 call for 1.23 credit. With the decay of the ETF and time decay of the option seems to be an "edge" ??. Also seems as if puts are really cheap and calls really expensive ?
Thxs
I beg of you not to do this, and I'll tell you why. I had a friend who got approved for naked options trading. Over a couple years he had worked a few hundred grand inheritance up to about a million. In 2015, who knows why, perhaps just overconfident, he sold 300 UVXY monthly calls, $90 strike price, when UVXY was 30. UVXY went near 100 in a week and the calls went from 20 cents to 40 dollars. Yes, those calls went up in value by TWO HUNDRED TIMES. So he shorted calls for proceeds of $6,000 for "monthly income" and had to buy them back for $1,200,000. Account value was negative by several hundred thousand dollars and he was literally suicidal- we actually thought he was going to do it.
If you call TD Ameritrade or other brokers they will confirm there were multiple instances like this both in 2015 when UVXY went up 300% and in 2011 when TVIX went up 650%.
As others noted, even selling call spreads is a bad game- because many times, with the bid/ask spread and lack of liquidity, you're only going to get 50 cents for a $5 wide spread. So you can easily lose $100K trying to make $10K gain if you get caught in a spike.
Especially now with North Korea situation I would never ever do this unless you are prepared for the very real chance UVXY could go from 29 to $200.
I am sure you are also aware of this so if you are just ignore my comment but do you really understand the implications of an ETF whose return is 2x daily?
Take this example, a fund that returns 2x daily on VIX, let's call it UVXY (I know it does it with futures but bear with me just for this example)
Day 1: VIX=10, UVXY=20 .... VIX goes to 11, so a 10% increase
End of Day 1: VIX=11, UVXY=24 (20 + 20% of 20)
Day 2: VIX=11, UVXY=24 ... VIX goes to 13.2, so a 20% increase
End of Day 2: VIX=13.2, UVXY=33.6 (24 + 40% of 24)
Day 3: VIX=13.2, UVXY=33.6 ... VIX goes to 26.4 so a 100% increase
End of Day 3: VIX=26.4, UVXY=100.8 (33.6 + 200% of 33.6)
Day 4: VIX=26.4, UVXY=100.8 .... VIX goes to 39.6 so a 50% increase
End of Day 4: VIX=39.6, UVXY=201.6 (100.8 + 100% of 100.8)
SUMMARY OF 4 DAYS:
VIX went from 10 to 39.6 an increase of 296%
UVXY went from 20 to 201.6 an increase of 908%
I am sure we all understand this but sometimes we lose track of this.. twice the daily return on a sustained move will lead to MUCH MUCH MORE than twice the return over a longer period and that is where the risk lies with these products and a reason not to stay away from them but to be aware of this and maybe never have naked short calls on them (since a single sustained move could easily lead to loses multiples of what we believed we had)
Of course in real UVXY there is a daily rebalancing (rollover) effect (selling front month futures and buying back month, which is normally in contango) which makes it tend to drift lower on markets with low volatility but with a sustained rally like the one described in the example one would think that the term structure of VIX would move into backwardation easily, making UVXY go higher even faster (since it would be selling expensive front month futures and buying lower back month futures).
Bottom line: Understand these products VERY WELL before you put on trades on them... especially naked
Take this example, a fund that returns 2x daily on VIX, let's call it UVXY (I know it does it with futures but bear with me just for this example)
Day 1: VIX=10, UVXY=20 .... VIX goes to 11, so a 10% increase
End of Day 1: VIX=11, UVXY=24 (20 + 20% of 20)
Day 2: VIX=11, UVXY=24 ... VIX goes to 13.2, so a 20% increase
End of Day 2: VIX=13.2, UVXY=33.6 (24 + 40% of 24)
Day 3: VIX=13.2, UVXY=33.6 ... VIX goes to 26.4 so a 100% increase
End of Day 3: VIX=26.4, UVXY=100.8 (33.6 + 200% of 33.6)
Day 4: VIX=26.4, UVXY=100.8 .... VIX goes to 39.6 so a 50% increase
End of Day 4: VIX=39.6, UVXY=201.6 (100.8 + 100% of 100.8)
SUMMARY OF 4 DAYS:
VIX went from 10 to 39.6 an increase of 296%
UVXY went from 20 to 201.6 an increase of 908%
I am sure we all understand this but sometimes we lose track of this.. twice the daily return on a sustained move will lead to MUCH MUCH MORE than twice the return over a longer period and that is where the risk lies with these products and a reason not to stay away from them but to be aware of this and maybe never have naked short calls on them (since a single sustained move could easily lead to loses multiples of what we believed we had)
Of course in real UVXY there is a daily rebalancing (rollover) effect (selling front month futures and buying back month, which is normally in contango) which makes it tend to drift lower on markets with low volatility but with a sustained rally like the one described in the example one would think that the term structure of VIX would move into backwardation easily, making UVXY go higher even faster (since it would be selling expensive front month futures and buying lower back month futures).
Bottom line: Understand these products VERY WELL before you put on trades on them... especially naked