Doubling up on Oil, betting on VIX dropping


Updated: Mar 12th, 2012 | Vance Harwood | @6_Figure_Invest

Did covered calls on Oil — bought USO at 37.19, sold-to-open May 37 calls at 1.02 for a net investment of 36.18.

Created a bear spread on VIX options today.   Betting on VIX going down is forecasting that the market in general will be flat or positive.  I sold-to-open June VIX 16 calls at 10.26, bought  June  VIX 32.5 calls at 1.88 for a net credit of  8.38.  I was able to approximately split the bid/ask prices with my combo order.   At the time of the order the spreads were approximately 10.00 / 10.60 on the June 16 options and 1.80/1.95 on the June 32.5 calls.  Going with the published bid/ask prices leaves money on the table.

The VIX cash index was around 28.5 at the time my order filled.   I initially tried to go short on VXX, but Schwab had VXX in the “hard to borrow” category this morning.   I suspect lots of people were trying to short the VXX today.   I went with June options rather than May because there are only 7 days left on the May VIX options–I wouldn’t be surprised at all to see one more down leg in this correction.    I expect the June options will move much down much slower than the VIX index as the market moves away from fear mode.

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Monday, March 12th, 2012 | Vance Harwood