Bought puts on VXX.
music selection: “Girl On Fire” — Alicia Keys
weigh-in: 211.0 +1.0
I’m getting back to my roots. VXX suffers from terminal “contango”. That is, it is an ETF designed with intent to track the DAILY price moves in the ^VIX volatility index. It is horribly constructed for a long term instrument however. It uses front and second month futures and rolls them daily. In a normal environment, because the longer dated future will have more time value, it will be more expensive than the shorter dated future. Thus, the fund sells a cheap asset to buy a more expensive one almost every day. This is resulted in an ETF that loses on average 60% a year.
Certainly, it times of high volatility, the futures can go into “backwardation” with the front month future being more expensive. This happened with COVID-19, causing the price of VXX to skyrocket. Now that we have an uptrend back in the broad market, I’m betting the long term decay of VXX will resume.
Today I bought 12 contracts of VXX210115P00035000 for 10.49 a share. That puts 12,590 of capital at risk (about 10% of my main trading account). I’m targeting a 15-20% gain for exit and think that could happen as soon as 30 days. I’ll be rolling down each time I cash out for compounding.
Devour your prey raptors!
Have you seen the infection numbers out of Germany, which reopened recently.
Have not. I’ve seen US numbers for US states that are reopening and there are big spikes. I am working on a more bearish COVID-19 influenced trade for tomorrow.