VXX Options—Similarities and Differences with VIX Options

VXX options offer ways to take either long or short volatility positions.  Unlike most securities VXX tends to go up when the market is down—which leads to some signficantly different options characteristics. Comparing VXX options to VIX options: Similarities: Both are ultimately based on the Cboe’s VIX futures Will show a strong reversion to baseline behavior when the market is behaving itself—the VIX index and …

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Going short on VIX?

Unlike the S&P 500 or Dow Jones Index, there is no way to directly invest in the VIX index.  I’m sure some really smart people have tried to figure out how to go long or short on this computed volatility index, but there’s just no way to do it directly.  Instead, you have to invest in a security that attempts to track VIX.  None of …

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Capturing dividends with covered calls—are you ready?

In a recent post I gave an overview of dividend capture strategies. In some situations, an effective way to hedge risk with a dividend capture strategy is to use covered call options.  If you are not familiar with options this might sound exotic, but it’s truly the training wheels of option trading.  With covered calls, you can introduce yourself to the conservative, hedging possibilities of …

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Trading in IRA accounts, and avoiding “free riding”

As much as possible I try to trade in my IRA accounts—in order to defer taxes of course. It is a bit counter-intuitive to be doing more speculative activities in a retirement account, but this approach supports my goals:

  • Achieving good returns
  • With reasonable risks
  • While compounding growth

If your money is in Roth accounts, all the better, but most people interested in trading in their IRAs are restricted to traditional IRAs.

There are restrictions on what trades you can do in an IRA account.  For example, you can’t short a stock in an IRA account, but option restrictions have eased some over the years,  and market innovations like short ETFs (e.g., SH, SDS) have effectively bypassed some of the more onerous restrictions.   Brokers vary considerably in what they allow in IRA accounts, so pays to ask around.   Fidelity & Schwab allow many types of option spreads that some brokers might not. Covered calls and protective puts on long positions are broadly available within IRAs. Interactive Brokers and TD Ameritrade both waive the 2-day settlement requirement on trades in IRAs so if you plan to do frequent trades they would definitely be worth a look.

For a more general treatment on trading in IRAs see “Top 15 Questions About Trading in IRAs.”  The rest of this post will deal with free riding and how to avoid it.

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Thirteen Things You Should Know About Trading VIX options

If you want to trade options on fear I’ve listed some things below that you should know.  If you are interested in other volatility investments besides options see “10 Top Questions About Volatility“.  Regarding VIX options: Your brokerage account needs to be a margin account, and you need to sign up for options trading.   There are various levels of option trading available (e.g., the …

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