I haven’t had significant VIX-related exposure since closing a large diagonal SVXY call spread back in June. This market has remained very calm resulting in VIX index printing seven daily closes in a row below 10 pushing short vol ETPs to new record highs.
I was expecting vol to be subdued but the VIX futures curve is looking quite dangerous for everyone who is shorting vol at these levels. Obviously, there is nothing out there to preclude further moves higher for short vol ETPs, however at this particular juncture I’d rather be neutral and observe instead of actively trading. I believe SVXY has potential to run as high as $100 by early to mid September if VIX index continues to settle around 10 for another six-seven weeks. Nonetheless, any minor market pullback could have devastating effects on short vol ETPs and that is why I’m not chasing SVXY higher given the current VIX futures curve structure.
With vol at record lows I still believe it makes sense to remain long certain individual securities via call options. My portfolio composition hasn’t changed much since the latest update and results have been mostly neutral to positive.
Most indicators I follow are looking healthy further strengthening the bull case for equities in the near-term. Overall market hasn’t had a 5% pullback for 269 days, which is fourth-longest in history. At some point there will inevitably be a selloff (of unknown degree and unknown duration) but it doesn’t look imminent based on what I’m seeing at this time.
Positions
My portfolio continues to grind higher on a weekly basis. I have two clear laggards at this time, which is GE and OCUL and several winners such as DHI, IBKR, TWTR, and TLLP. I have trimmed TWTR position several weeks ago and sold 2/3 of TLLP around $1.90.
I have several other stocks on my radar but I’ve been patient to keep some dry powder in case correction/pullback does take place unexpectedly.
Account performance
Trading VIX 
July 24, 2017 at 8:59 pm
Hello again limitless,
Last two years, VIX hitted 26 lelvel during summer.
As it was excessively low since April 2017, I agree that it is more secure to stand before openning a new postition.
Regards
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July 26, 2017 at 6:47 pm
Hello limitless
How low vix index can go? today hit 8.84 for a second and i think this is lowest in last 10 years .
Thanks
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July 27, 2017 at 7:29 am
It’s the lowest in all of VIX index history, however, I had written a post a couple of months ago arguing that VIX index history is too short relative to overall market and it is mostly overstated as we had two decades of relatively elevated volatility.
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July 26, 2017 at 6:55 pm
Hello again Limitless
What is your idea of initiating Bull call spread on vix index 10 -15 jan 16/2018. Thanks
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July 27, 2017 at 7:27 am
Foad, it’s impossible to initiate a call spread on VIX index. You can do it either with VIX futures or VIX-based ETPs
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July 27, 2017 at 11:36 am
Hello Limitless,
I have options available in TD ameritrade under VIX (until January 2018) and not under VIX futures with the strike price adjusted to the VIX itself.
From CBOE:
“In 2006, options on the CBOE Volatility Index® (VIX®) began trading on the Chicago Board Options Exchange. The VIX options contract is the first product on market volatility to be listed on an SEC-regulated securities exchange. ”
This is probably constructed by using futures, but in what way does this affect an investor who would want to buy a bull spread as per Foad question ?
The cost of the January 2018 bull spread (12/15) is $ 2.75 with a break even price of VIX at $ 12.75 according to TD. Is this information reliable ?
And to repeat his question, does the above trade make sens in your opinion to profit from a rise in the VIX on the short term (September-October) ?
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July 27, 2017 at 2:11 pm
Curious,
you probably meant 10/15 bull spread not 12/15.
The spread will settle based on VIX index value at the time of January VIX futures expiration.
It’s difficult to gauge the attractiveness of such a spread given the extended nature of low volatility environment. However, if your forecast assumes a market correction of 5% prior to expiration in January, you probably stand to make money with that spread at some point in time.
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July 28, 2017 at 6:36 am
Thank you both for your insight.
Limitless,
Yes, the bull spread was incorrect. I did mean the 10/15.
Limitless, Happy Algo,
Even with yesterday’s mini-spike in the VIX (VIX up 25% from low of the day at one point), this had no effect on the price if this bull spread.
Even the January 2018 call at strike 12 alone only moved 1.5% yesterday.
I come to think that there is no reasonable way to bet on VIX spikes. Better wait for one, and profit after when it drops.
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July 27, 2017 at 3:17 pm
VIX options are European settled, so I would assume they’ll be bid at significant a discount to the 12.75 breakeven until shortly before expiration. This discount may remain severe as long as the VIX stays low.
I would check the spread on both legs of the trade to see if you’re comfortable with the bid, and make sure it aligns with your risk appetite if vol does not pick up and you have to cut the position.
In terms of whether it’s sensible to forecast VIX above 12.75 in January: who knows? it’s not unreasonable, but low volatility is autodependent and has a tendency to reinforce itself.
Is it the best trade you can put on with your capital right now? Unlikely. I would argue there are more competitive trades right now, and it would be more valuable to keep the cash on-hand for a truly asymmetric opportunity.
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July 27, 2017 at 8:48 pm
Happy Also, please let me know what asymmetric opportunities are attractive to you. Thanks!
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July 28, 2017 at 2:23 pm
There are a handful of microcaps that look promising for long-term capital deployments, in the style of a Graham-Buffet-Munger value approach. As a personal preference, I enjoy small companies with strong fundamentals. There are information asymmetries with microcaps, which can lead to mispricing and opportunities for discerning investors who don’t mind reading a few year’s worth of 10-Ks.
I’m in the following tickers with a moderate amount of capital: GV, EVOL, MNDO.
I also run some algorithms that look to scalp and swing SPY options, so I keep a lot of cash on hand for those trading signals.
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July 28, 2017 at 7:01 pm
Happy Algo, could you please explain “scalp and swing SPY options”. thank you
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August 2, 2017 at 5:08 pm
“Scalping” and “swinging” are timeframe references, looking for small, short-term dislocations in a security’s price. When a trading strategy issues a signal for such small dislocations in the S&P, I’ll often express it with short-dated options on ticker SPY in order to access the inexpensive leverage built into near-term options..
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July 31, 2017 at 5:03 pm
Hello limitless
Thanks for making correction , in previous comment i meant vix future option vertical call 10-15 jan 16/2018.
Also i have a question vertical call on svxy vs vertical put on vxx ., long term jan/2019 which one is preferred, i see i have to pay more for vertical put on vxx in similar situation .At this time 12.53 premium is as follows; Svxy at $91 vertical call $90-$100 jan/2019 bid $2.90 ask $4.95 ;; vxx at $11.20 verticall put $11-$10 jan/2019 bid $.56 ask $.74 .Thanks
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August 8, 2017 at 8:17 pm
What are your thoughts on KORS after todays move? How do you determine a good time to sell?
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August 8, 2017 at 9:01 pm
I sold a substantial amount of my call options today but it’s more of a macro market call rather than KORS-related worry.
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August 8, 2017 at 9:05 pm
Thank you for sharing. I was planning on selling most of my long position tomorrow thinking there may be some more follow thru to the upside. I was hoping for a stronger close today but then the market sold off 😦
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August 9, 2017 at 5:37 pm
Limitless,
What are these macro concerns trigger you closing substantial call options?
What is your overview for market for one month, and half year time frames. Thx.
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August 10, 2017 at 5:54 am
qizhongy,
I’m concerned with market internals such as bullish percent indices and percentage of stocks trading above/below 50/200 day moving averages.
At the same time, I realize it’s practically impossible to predict a market top, thus I’m trying to close as many positions as I find practical.
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August 11, 2017 at 12:34 am
Limitless,
Thanks! Market had relative big move today. What will be the macro circumstances for you to open new positions?
Should you build up position at one shot, or progressively set up positions, what will be the criteria for your level of involvement, I mean percentage of total asset to open new position?
What is the method to determine the bottom of market? Not be exactly accurate, but either a level or time frame ranges.
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August 11, 2017 at 6:34 am
Qizhong,
SPY is only 2% below its all-time high. That’s an insignificant move to search for a bottom. However, I’m seeing opportunities in many places and have been scaling in.
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September 22, 2017 at 5:17 pm
Hi Limitless,
I hope all is well 🙂 What do you think about the move in PSXP today. I have some long calls still a bit underwater. Any updates on volatility trading?
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September 25, 2017 at 12:21 am
Charles,
it was a great move, but I have not seen any strength in MLP sector to remain confident with regards to future gains for PSXP. I will most probably hold my position through expiration and see where it ends up at that time.
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September 25, 2017 at 12:33 am
thank you for the response. I hope you are profitable in that position! 🙂 Thank you for commenting on your previous volatility positions. I was planning to hold psxp for a couple days to watch the shorts buy and move the price higher. I dont know the sector very well and the only thing I can say that might remotely be helpful is after a nice move up in a downtrend stock is many times it takes 3 to 5 days to see where the new top of the trading range is which might be a good point to exit most of your position on strength and then play with a small investment on the new trading range. Buying the lows of the range and selling before the highs. Im talking a small position just so you will keep your eye on the ball.
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