VIX Covered Calls?

[nazzdack]

Quote from rockthecasbah12:
----Being short a put is too high or risk for me.
----holding the underlying security in this trade.
----that is a little more difficult because I cannot outright buy the VIX.

1) ?....!....Uh, oh!
2) Do you believe a covered-call is less risky than a short-put?
3) With the VIX, you have to properly understand that the "underlying" is the futures contract, not the cash-index.
4) You may be better off to trade stocks instead until you comprehend the quirks of the VIX.

 

[rockthecasbah12]

Quote from nazzdack:

1) ?....!....Uh, oh!
2) Do you believe a covered-call is less risky than a short-put?
3) With the VIX, you have to properly understand that the "underlying" is the futures contract, not the cash-index.
4) You may be better off to trade stocks instead until you comprehend the quirks of the VIX.

2. On a covered call, my loss is limited to the amount I paid for the underlying shares. To me, that is less risky.

3. I clearly understand the VIX is not tradable, and is not the underlying for anything.

4. Why do you think I am here? I've never traded futures, and have no plans to trade futures anytime soon. I am trying to gain knowledge about them, not be talked down to.

 

[nazzdack]

Quote from rockthecasbah12:
2. On a covered call, my loss is limited to the amount I paid for the underlying shares. To me, that is less risky.
4.....being talked down to.

2) Your response is indicative of ignorance and deception. Regarding covered-calls versus short-puts, arithmetically, the risk is the same. Geometrically, it may "feel" different.
4) If you want "false" hope and encouragement, look elsewhere. There's no shame in focusing on what you can do best and avoiding areas where you're less best.

 

[rockthecasbah12]

Quote from nazzdack:

2) Your response is indicative of ignorance and deception. Regarding covered-calls versus short-puts, arithmetically, the risk is the same. Geometrically, it may "feel" different.
4) If you want "false" hope and encouragement, look elsewhere. There's no shame in focusing on what you can do best and avoiding areas where you're less best.

The feel you're referring to is that if my position goes sour in a covered call, I can ride it out, as there is no expiration on how long I can hold a stock. For VIX this is obviously not an option, as futures will also have an expiration. Also, the type of trade I am trying to figure out is only to take advantage of high premiums on VIX call options, not choose a direction of the VIX price.

 

[nazzdack]

Quote from rockthecasbah12:
----if my position goes sour in a covered call, I can ride it out, as there is no expiration on how long I can hold a stock.
----futures will also have an expiration.
----I am trying to figure out how to take advantage of high premiums on VIX call options, not choose a direction of the VIX price.

1) Instead of VIX futures, you could trade the VIX (ETF) exchange traded fund as your underlying giving you a potentially infinite time horizon and the ability to continually write call options against that position....until you get called/exercised.
2) "High" premiums carry higher risk and aggravation. Please don't think you're somehow getting "free money".
3) If you actually "know" when premiums are "high" or "low", you should be trading the underlying, outright, because you can make more money that way instead of hoping for premium decay on short-call positions.

 

[rockthecasbah12]

Quote from nazzdack:

1) Instead of VIX futures, you could trade the VIX (ETF) exchange traded fund as your underlying giving you a potentially infinite time horizon and the ability to continually write call options against that position....until you get called/exercised.
2) "High" premiums carry higher risk and aggravation. Please don't think you're somehow getting "free money".
3) If you actually "know" when premiums are "high" or "low", you should be trading the underlying, outright, because you can make more money that way instead of hoping for premium decay on short-call positions.

Are you talking about VXX and VXZ? And how would you structure the trade?

 

[nazzdack]

Quote from rockthecasbah12:
----VXX or VXZ?
----structure the trade?

1) That's your choice.
2) When I do covered-calls, I sell a shorter-dated, at-the-money, strike price. I want to maximize the premium and not be concerned about capital gains on the stock.

 

[osho67]

Quote from nazzdack:

1) That's your choice.
2) When I do covered-calls, I sell a shorter-dated, at-the-money, strike price. I want to maximize the premium and not be concerned about capital gains on the stock.

Thanks for your comments. How would you address when the stock price falls? Do you take a loss or sell covered call at a lower strike price? Your guidance will be much appreciated. Thanks

 

[osho67]

VXX and VXZ stock prices are at a very low level at the moment. Are they likely to go much down?

 

[rockthecasbah12]

Quote from nazzdack:

1) That's your choice.
2) When I do covered-calls, I sell a shorter-dated, at-the-money, strike price. I want to maximize the premium and not be concerned about capital gains on the stock.

With VXX and VXZ being different prices from the VIX, how many shares do you buy and how many calls do you write? I think if I were to do it, I would sell deep in the money VIX calls.