VXX - a trending stock

S

samer1

The nice thing about VXX is the fact that it is trending down... and it will continue to trend down... it is just like the opposite of Apple, although Apple is likely to stop its uptrend at some time... However, VXX will go down forever and spike from time to time...

Is anyone trading VXX options? I think that the continuous downtrend of VXX offers some interesting opportunities...
 
Generally your trading in the futures term structure that you can only vaguely account for... most guys I know are directly in the futures or directly in the option on those futures... how can you account for what the etf owns of each moment in any given time.. shorting it is similar to buying the uvxy or buying calenders spreads in the front month futures...
 
Quote from cdcaveman:

Generally your trading in the futures term structure that you can only vaguely account for... most guys I know are directly in the futures or directly in the option on those futures... how can you account for what the etf owns of each moment in any given time.. shorting it is similar to buying the uvxy or buying calenders spreads in the front month futures...
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Yes, I agree with you. However, trading the VXX is cheaper than trading the underlying futures... ACtually, I assume that VXX is fairly priced, otherwise there is arbitrage. The idea is that VXX is trending down... So options might give an edge...
 
I've been in VXX and UVXY for quite some time now, made some great money of it. IMO they have nowhere to go but down.
 
Quote from samer1:

Yes, I agree with you. However, trading the VXX is cheaper than trading the underlying futures... ACtually, I assume that VXX is fairly priced, otherwise there is arbitrage. The idea is that VXX is trending down... So options might give an edge...
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I always wonder how the adjust the pricing model for the options in such an instrument... how does one price the futurescurves constantly changing iinfluence on the options. Pricing models can be messy with equities... much less futures much less etfs derived from futures... these etfs are really derivatives of derivatives... so options on them are 3rd order
 
Quote from TskTsk:

I've been in VXX and UVXY for quite some time now, made some great money of it. IMO they have nowhere to go but down.
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If you stay small enough in a short position so that you can have enough powder to martingale into a huge spike and hold I'm sure you can double or triple up
 
Quote from cdcaveman:

If you stay small enough in a short position so that you can have enough powder to martingale into a huge spike and hold I'm sure you can double or triple up
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That is why I am asking whether there are some interesting option structures that might be suitable for this kind of stock... it is in a permanent downtrend with occassional spikes.


I am thinking of something like this:

VXX @ 35.

Long term Put spread:

Short Put @ strike 34
Long Put @ strike 36

The position is opened and once VXX falls enough that the delta is close to zero, one closes the position and opens a new long term put spread with new strike prices...
 
Quote from samer1:

That is why I am asking whether there are some interesting option structures that might be suitable for this kind of stock... it is in a permanent downtrend with occassional spikes.


I am thinking of something like this:

VXX @ 35.

Long term Put spread:

Short Put @ strike 34
Long Put @ strike 36

The position is opened and once VXX falls enough that the delta is close to zero, one closes the position and opens a new long term put spread with new strike prices...
More...

This brings up my prior point respectively... this put spread expression is saying something about direction of vol. and a play on how the options have the "roll cost" or term structure curve priced into them.... I agree that looking for an option spread has a better risk profile then just short shares... but how in the world does one price that put spread relative to the contango... basically if they are mid priced relative to the roll cost due to con tango they most always be underpriced...hard to believe. But idk.. I've never met anyone that has really quantified these variables... and like I said most guys play the futures directly... cause essentially that's what your doing
 
Quote from cdcaveman:

This brings up my prior point respectively... this put spread expression is saying something about direction of vol. and a play on how the options have the "roll cost" or term structure curve priced into them.... I agree that looking for an option spread has a better risk profile then just short shares... but how in the world does one price that put spread relative to the contango... basically if they are mid priced relative to the roll cost due to con tango they most always be underpriced...hard to believe. But idk.. I've never met anyone that has really quantified these variables... and like I said most guys play the futures directly... cause essentially that's what your doing
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I understand your point... I believe that the skew of the IVs of VXX takes into account the downward drift. Remember in Black Scholes the stock is also assumed to have an upward trend which is equal to the risk free interest rate...
 
Quote from cdcaveman:

If you stay small enough in a short position so that you can have enough powder to martingale into a huge spike and hold I'm sure you can double or triple up
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No need for martingaling (which is a very bad idea in the first place) as long as you play limited risk positions, for instance buying puts or just putting in a simple stoploss....I for one do not have particular worries about spikes as I got in short at such a high price, I doubt it's ever going back to those levels ever.
 
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