It's all fair game then
Selling puts on SVXY
- Thread starter rocky_raccoon
- Start date
It's all fair game then
In 2008, vix jumped from 19 to nearly 80 within few weeks. That's a -300% move for short vix futures positions. Of course the futures price will be in backwardation, but still...You can figure it yourself. A 100% rise for vix means a 50% drop for svxy.
XIV is the same thing as SVXY. You can compares these two and will find them exactly the same. VXX is just the opposite. VXZ and ZIV are opposite to each other. They track the mid-term vix futures. They move with vix but with less percentage.
So, that would mean SVXY or XIV would drop 80% or so. Bad enough but not zero. For XIV it would mean a fund termination as they have a built in stop-loss at 80% decline. SVXY does not have that feature.
Here is a simulation of XIV since 2004:
http://investing.kuchita.com/wp-content/uploads/2012/06/XIV-Historical-Data1.png
The drop in 2008 would've been close to 90%
On the other hand, here is a long VXX/long XIV pair performance that seems to be doing well in any market:
http://dontfearthebear.com/2013/03/01/a-few-notes-on-xiv-vxx-pair-trades/
Thank you for providing such important information. Which software/database did you use to make that chart? I tried to calculate the price of vxx before its existence but didn't get correctly.
The XIV/VXX pair trade seems to perform well. But there might be a problem: the vxx declines in most time, and its shares and price will be re-calculate after a period. So the hedge ratio will be a big problem.
I did not make the chart. I found it on the Internet
A major concern on this thread is the fact that SVXY has rapid price swings.
I looked at XIV data since inception and made a few quick assumptions about covered calls which would apply to SVXY. One being that the at the money call three months out would give about a 10% premium
Since 11/20/2010, in roughly three month periods, XIV has gone in price from $10 to $13, $17, $7, $5(11/19/2011), $9, $10, $16, $18(11/17/2012), $22, $23(5/19/2013).
Assuming 10% of current price for each 3 month period, that would give $100, $130, $170, $70, $50, $90, $100, $160, $180, $220, 230 per call written, or a total of $1500.
Given the starting cost of $1000 per 100 shares, a profit of $1270 (ignoring the most recent call written) in 2.5 years looks very good.
I looked at XIV data since inception and made a few quick assumptions about covered calls which would apply to SVXY. One being that the at the money call three months out would give about a 10% premium
Since 11/20/2010, in roughly three month periods, XIV has gone in price from $10 to $13, $17, $7, $5(11/19/2011), $9, $10, $16, $18(11/17/2012), $22, $23(5/19/2013).
Assuming 10% of current price for each 3 month period, that would give $100, $130, $170, $70, $50, $90, $100, $160, $180, $220, 230 per call written, or a total of $1500.
Given the starting cost of $1000 per 100 shares, a profit of $1270 (ignoring the most recent call written) in 2.5 years looks very good.
I received a private reply ..
yes, you would have to rebuy at $15, but the assumption is that the call would then sell for $1.50. If the stock returns to lower levels, then this strategy seems more profitable. Only if it keeps going up would purchasing the stock outright be better. But even with covered calls in this scenario, you'd still make 10% every 3 months.
yes, you would have to rebuy at $15, but the assumption is that the call would then sell for $1.50. If the stock returns to lower levels, then this strategy seems more profitable. Only if it keeps going up would purchasing the stock outright be better. But even with covered calls in this scenario, you'd still make 10% every 3 months.
Hey all,
it's been interesting to read this thread.
I'm trading SVXY for cca 7 months and despite being quite conservative trader, I've been writting naked puts...
I also bought the ETF (outright) during the last dip just to "papertrade" it with a bit of real money and was lucky to catch a bottom (which wasn't the point), so made some extra cash after selling it for 95 cca 2-3 weeks later.
The reason I got involved with SVXY is the zero limit at the bottom, which I like. I even called ProShares to discuss if it could in theory go below zero or what's gonna happen if it goes to zero and they said that it's possible in theory, but very unlikely (due to nature of the calculation) and that it cannot go below zero (same reason) and that they never closed a fund so far.
How they typically manage the funds to stay comfortable for ID trading is doing splits or reverse splits, which wouldn't be an issue for zero to serve as a stop-loss.
The more I thought about it, it looks buying SVXY index after splits or bigger dips is better (risk wise) than writting puts, as the management of such naked position is OK if one has strikes around 70, but I would not be comfortable having 90+ and having to face a big dip to say 30-40 range (even though it's manageable as well, but it could block unreasonably big part of the trading account).
I was not able to come up with any reasonable covered option (spreads) strategy that would yield similar results as the naken version with a reasonable chance to manage the position and protection against the big dips. If you know of anything reasonable, I'll be glad if you give me a hint.
Cheers,
Tom
it's been interesting to read this thread.
I'm trading SVXY for cca 7 months and despite being quite conservative trader, I've been writting naked puts...
I also bought the ETF (outright) during the last dip just to "papertrade" it with a bit of real money and was lucky to catch a bottom (which wasn't the point), so made some extra cash after selling it for 95 cca 2-3 weeks later.
The reason I got involved with SVXY is the zero limit at the bottom, which I like. I even called ProShares to discuss if it could in theory go below zero or what's gonna happen if it goes to zero and they said that it's possible in theory, but very unlikely (due to nature of the calculation) and that it cannot go below zero (same reason) and that they never closed a fund so far.
How they typically manage the funds to stay comfortable for ID trading is doing splits or reverse splits, which wouldn't be an issue for zero to serve as a stop-loss.
The more I thought about it, it looks buying SVXY index after splits or bigger dips is better (risk wise) than writting puts, as the management of such naked position is OK if one has strikes around 70, but I would not be comfortable having 90+ and having to face a big dip to say 30-40 range (even though it's manageable as well, but it could block unreasonably big part of the trading account).
I was not able to come up with any reasonable covered option (spreads) strategy that would yield similar results as the naken version with a reasonable chance to manage the position and protection against the big dips. If you know of anything reasonable, I'll be glad if you give me a hint.
Cheers,
Tom
Are you suggesting its time to sell CALLS?