I sold my 18 strike VXX puts for 10 dollars today.
music selection: “Best You Can Get” — Veruca Salt
On 13OCT2020, I purchased seventeen 18 strike puts on VXX with 20JAN2023 expiry for 9.10 a share. VXX is a fund that attempts to track the daily movement of the ^VIX, also known as the “fear gauge”. VXX does its job poorly. The mechanism for tracking is to buy the front and second month futures and roll daily. Contango in the futures markets means that most of the time, the fund sells a ‘cheap’ asset to buy an ‘expensive’ one. Decay of 60% a year is normal. I have long taken advantage of this to buy long dated puts.
Ordinarily, I would be rolling this position. However, I have a second VXX long put position at the 13 strike and would like to de-risk and raise cash while the market is at all time high valuations. I sold today for $10.00 a share. On 15,400 in capital at risk, I earned 1,530 or 9.89% over 122 days, which is good for 30% annualized return.
This trade put my February options on pace for 6,140 in profits, assuming today’s prices hold at expiry. A bull call spread positions in Walmart (WMT) is currently threatened with the high strike 0.50% out of the money. If expiry was today, the position could closed for around at 1,296 profit. All other February spreads are well in the money and represent “sleep at night” investments.
Devour your prey raptors!