I've done several posts on how and when to mechanically short volatility with VXX, UVXY, and VIX short call verticals and SVXY short put verticals with the focus being upon an entry when the VXST/VIX ratio is greater than 1.00 and (ideally) higher.* You can naturally wait for those events to occur and then do one of these "one-off" plays with a set expiry, looking to take advantage of inevitable contango drift.**
If you're the impatient sort and just want in, you can dollar cost average into a short VXX, short UVXY, or long SVXY position with short shares (in the case of VXX and UVXY) or long shares (in the case of SVXY, since it's an inverse). Because I'm not particularly fond of the various warts associated with a short shares position (on margin, heart attack on VIX spike), I'm opting for SVXY long shares here instead. Notably, SVXY long shares have their own warts: (a) they're pricey compared to VXX and UVXY; and (b) the underlying is subject to a "terminal event" -- an event where the VIX spike is so dramatic and profound that SVXY goes to zero. To "cover" that remote possibility, I've bought the cheapest, deepest out of the money long put there is -- the January 18th 2019 2.5 put (currently 439 DTE), which I'll leave in place as I accumulate SVXY long shares either on VXST/VIX ratio spikes or on a dollar cost averaging basis or both.
The first set of shares was bought at 106.25. As you can see by the chart, this wasn't an ideal entry (there was a VXST/VIX >1.00 event on 10/25 shortly before I bought these when SVXY dropped to 94), but the notion is to accumulate shares over time and let contango work its magic as opposed to fretting over "surgically ideal entries."
* -- I like a ratio of 1.15; 1.00 seems to produce too many occurrences. ** -- I will, in all likelihood, continue to do those "one-off" trades, although we've had very few of the >1.15 VXST/VIX ratio events this year to take advantage of.
Trade ist aktiv
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Adding long shares at 101.92 on a VXST/VIX print of >1.00. Cost basis of 104.09.
Trade ist aktiv
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Adding long shares at 98.34 on a VXST/VIX print of >1.00. Cost basis of 102.17.
Trade ist aktiv
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Just a small post-mortem/casual observation here after I added long shares this a.m.: the VXST/VIX ratio high today was actually only .99. Nevertheless, VIX was up substantially, no doubt in part due to expiration of the November contract/rollover + the sell-off we had. In a nutshell: watch for opportunities at rollover even if the VXST/VIX ratio isn't all that high ... .
Trade ist aktiv
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SVXY at ATH's. If you're in "big," might want to peel some off here. Me, I'm riding the pony higher ... .
Trade ist aktiv
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Adding shares at 112.25 on a VXST/VIX print of >1.00. Cost basis of 104.69.
Trade ist aktiv
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The patient who waited for a >1.15 ratio print would have probably been rewarded today, assuming they could've gotten in around the lows.
Trade wurde manuell geschlossen
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Covering the long shares here for 115.16 (10% ROC). Will consider reloading on dippage ... .
Kommentar
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Ugh. Although the small number of shares I bought would have lost most of their value here (it was far less than a one lot), the Jan 43 "terminal event long put" that I bought for .15 ($15) would now be worth 30.55 ($3,055), wayyyy more than offsetting the loss in share value ... .
Why not trade verticals? Either PCS or CDS? Defined risk and can scale to achieve better returns. Buying protective puts when you are long shares? The risk of owning shares outright is huge -- wouldn't take much of a spike in VIX to crater SVXY at this point, with vol being so low. This market can gap through stop losses just when you need them to work.
Also, do you wath the VIX/VXV ratio? I'm curious to see what reasoning brought you to VXST as the denominator.
Just some thoughts. I've compared long shares against verticals and have settled on the spreads as the safer approach while offering similar returns.
WanderingSadhu
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@NaughtyPines please ignore the comment. I just read through the thread and understand that my first impression of your approach was incorrect.
NaughtyPines
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@Jaymanicus, From a defined risk/buying power effect perspective, buying long call verts or selling short put verts (in the case of SVXY) probably makes more sense, particularly when SVXY's 128/share. I basically stumbled across an article about using the VXST/VIX ratio as a mechanical entry indicator (>1.15 is great if you're extremely patient), but VIX/VXV also works (>.90), as well as VVIX (>110).
Tom1trader
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Closed out this am too. (you beat me!). Not as much patience closed the 20 shares from Friday at 114.65. It was about the commission over 8 percent ROC in 3 days - I'll take it!
NaughtyPines
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@Tom1trader, Awesome! Glad I got out when I did. Think it kind of crumpled in later in the session ... .
Tom1trader
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Had sold the 6 SVXY shares Monday at $45 gain. Was not so patient today and picked up 10 at 107.40 and 10 more after it kept dropping at 104.79 +added a VXX bearcall. This should all be well and good though this could go to zero with no backup on the ETN and the spreads could get hung out to dry If it decides to revert only to a higher "mean".
NaughtyPines
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@Tom1trader, It was tough to catch the actual bottom ... . So fleeting. Since I added some SVXY yesterday, I decided to just ride it out and focus on UVXY short call verts instead for a shorter term play. 20-20 hindsight: wish I would have bailed at SVXY 116 and reloaded here. Oh, well ... .
Tom1trader
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6 shares only here, going to hang in there myself. Heard some optimism from some of Senators and Congressmen but believe they are pretty far apart. They are apart enough to where the tax bill is certainly not one for the routine comprise process when that happens. So . . . they going back to it Monday and am thinking might take profit then before any news gets out?
NaughtyPines
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@Tom1trader, For me, it's a small position, relatively speaking, so going to continue buying shares on these VXST/VIX >1.00 prints. Awfully tempting not to pull some off, though.
Tom1trader
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Put on 2 shares SVXY today. And put on some short call spreads VXX and 1 UVXY with the >1 ratio. And saw 16 come all the way in to May on /VX futures. While they we setting it up (futures on TW) for a short time could see /VX futures, even though not trading (have not asked to be enabled) them I can see the other futures quotes - they good at trading and support desks I should give them a call. I still am using CBOE quotes page to monitor /VX now.
Also, do you wath the VIX/VXV ratio? I'm curious to see what reasoning brought you to VXST as the denominator.
Just some thoughts. I've compared long shares against verticals and have settled on the spreads as the safer approach while offering similar returns.