The biggest downside of covered calls is their lack of downside protection on the underlying. A big, but not unusually big correction can wipe out many months worth of profits. One strategy for reducing this exposure is to buy puts, but when I have looked into this strategy in the past the puts were either so expensive they ate up all the profits, …
Made my first trade in XXV yesterday, buying at 23.07. During corrections, like the one we are in right now, the VIX index tends to spike up pretty early, a day or two in. Later, even when the market drops are larger, the VIX does not seem to match the earlier highs–unless of course the market moves into a more panicky phase.
Update Well, I was clearly wrong about people not being in panicky mood. Around 10:30 EST the market decided to take another leg down and the VIX did spike up quite a bit. Later in the day the market rallied back to around the point I created this position. I bailed out of my position less than an hour after I created it, …
I’ve been staying out of the market (except for USO), because I think the possibility of a pullback is fairly high. However, with two days to go on the SPY Weekly 6-August options (which are showing IVs in the 30s) things started looking attractive. I created an ITM covered call position, buying SPY at 112.45 and selling 111 strike calls at 1.84. …
Update: I do not believe XXV is a good way to short VXX, or volatility in general. It has very little upside remaining (maximum value will be $40/share), see this post for more details. ********************************************************** We know that Barclays’ XXV is intended to be an inverse fund of VXX, but there is some confusion regarding what kind of inverse it will be. Will it be the …
