I used today’s decline in SVXY to cover $95 September short calls at an average price of $2.60
August 9, 2017 at 10:17 pm
I have been following your trade. I was surprised when you opened it with a strike of 190 (95 today). I thought it was a little close. I read your explanation regarding the future curve.
Anyway, the closer we were getting to September, the more I thought you could pull it off with the put OTM.
You closed the trade today, but SVXY would have needed to climb 9% (from 87) to reach 95.
Wasn’t there a high probability that SVXY would be below 95 or very near at the term of the put ?
August 10, 2017 at 3:15 am
I’m not Limitless, but I think Limitless made the right decision today. In fact, when I saw SVXY falling below 85, I was thinking, “I hope Limitless is closing his $95 position right now.”
Here’s why I think it was the right decision:
1.) Today’s decline was catalyzed by a potential geopolitical conflict, which is unlikely to materialize.
2.) The ultra-low VIX is vulnerable to such sudden shocks, as fund managers are required to buy some protection to hedge against possible losses. Since protections are cheap, they have no problem buying a lot.
3.) If #1 and #2 are true, then this vol spike would be temporary. In other words, the fall in the price of SVXY is temporary and is likely to quickly bounce back like we’ve seen in the past three months.
Now, you might ask …
a.) “What if this was the beginning of a summer selloff?”;
b.) “People like Gundlach are shorting the market because fundamentals aren’t supporting another market rally.”
I don’t know the answer to either of these (and no one will). However, for the sake of risk management, I would lock in my ~50% profit and either hold the cash (if you’re bearish) or buy some clips of SVXY to benefit from contango and market stabilization (if you’re neutral to bullish).
Let me know what you think.
August 10, 2017 at 3:31 am
Also, keep in mind that M2/M1 was in the range of 8.5% – 12% today. Contango alone can push SVXY above $95.5 in the next seven weeks.
August 10, 2017 at 5:50 am
I was not comfortable with the position that is why I closed it. September VIX futures are high enough to ensure a 15% move from current levels for SVXY if markets remain calm.
At this point in time I have no idea whether the market is about to selloff or to continue grinding higher. Thus, I’m slowly closing down positions as they become profitable.
August 10, 2017 at 11:08 am
Could you please explain why you are still holding the bull call spread SVXY January 2018 (65/77.5) ?
Since both call are ITM, what future outcome could increase you profit ?
August 10, 2017 at 11:47 am
the spread is trading at around $8.50 now whereas maximum profit is $12.50
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