Unexpected and Vicious

This post may also be seen at: http://www.cboe.com/blogs/options-hub/2017/02/06/unexpected-and-vicious

Today's saga starts on January 24th, just two days ago but it seems like last week.  I had just, the day prior, added to my core short TVIX position to raise the number of shares from 2,000 to 2,500 as you see in the portfolio graphic below.  The price for that lot of 500 was $6.26.  This will be revisited later in the post.

First, let's dispose of the TNA story.  You'll see that standing out at the top of the graphic like the subject of a "which of these things is not like the other" song.  TNA is also a little reminiscent of TNT, and that's not a ticker symbol, that's more like:

Just before one in the afternoon, I got it in my head to short TNA because I thought it wouldn't climb higher and I wanted to paid for that failure.  I got one thing right but I didn't get what I wanted out of it.  TNA didn't climb any more that day, but in order to avoid paying for the venture, I had to wait until after hours to get out with a couple of dollars in my pocket.  And a wise move that turned out to be, because the next day TNA kept right on climbing like I thought it wouldn't, to right around 106.50 before cooling off.  I'm glad it climbed without me, because I don't like paying to take a "heck" ride.

The other oddity in the portfolio (above) is the 26 strike UVXY short put.  That same day, close to noon when UVXY was trading at about 26.30 or so, I sold 2 puts for the following week's expiration for the 26 strike for $1.37 premium each.  My plan was to cash those in quickly on any substantial bounce, but UVXY just kept on dropping.  Check the price now (or as of my writing, which is Thursday, January 26th in the afternoon.)  UVXY is now 23.95.

Now see the portfolio graphic above.  This was taken the next day, January 25th, when my 26 puts had gotten substantially away from me, and UVXY was hovering above 24.  I did a repeat by selling two of the 24 puts short for $1.01 in premium each.

Later on January 25th, I saw TVIX hitting a level so low (the same level where it sits at this moment) that I was inspired to bring in that addition to my short made two days prior.  I judged the return to be so good within just two days that a retracement would be likely - if not immediately, then pretty soon.  The chance of missing out on more return seemed expendable in this case (due to what I estimated to be its relative unlikelihood) compared to the benefit of locking the profit in; so, that much -and only that much - of my TVIX short, I booked as such:

As seen in the graphic below which was captured today, the 24 strike puts are no longer my problem; I bought them back to cover at exactly the price I had received for them.  Though they would have been the more logical selection to keep rather than the 26 puts, I wanted to clear some clutter off my table and wanted to lessen my risk exposure.  Next I mulled over a plan to make my short puts less risky, possibly by making them covered.  One alternative was to simply dump them for the loss you see below ($161, and I hate taking losses).  As I cogitated and calculated, UVXY hovered around 24.76 for a good long while, almost as if it urged and beckoned me to go ahead and make my move.  So I went ahead and shorted 200 UVXY at that price, making my two short 26 puts covered, even at a disadvantageous price.  The reason I call that disadvantageous is:

If expiration day comes seeing me refuse to trade in the contracts and UVXY remains below $26, I'll be assigned, which means I'll have 200 shares of UVXY put to me (long) at the contracted price of $26.00 even.  I would think of this (or rather, I'd finagle it to come out this way) as buying to cover my 200 shares short, which obviously I just transacted at 24.76.  This would represent to me a loss of  $1.24 per share of $248 total.  Keep in mind, though, that I received $264.65 for selling the two put contracts in the first place.  This would net out to being essentially flat.  I made this move today, shorting the 200 UVXY, to "lock in" a guaranteed outcome of no money lost to me, should UVXY stay below $26 and should I hold the puts through expiration.  Naked, the puts could cost me any amount of money, limited only by how low UVXY may drop between now and expiration.  Covering them made the downside (meaning: UVXY dropping lower) worst-case scenario outcome known to me.

On the other side, though, having these 200 shares of UVXY short exposed me to more risk, since UVXY could rise above $26 (and to any level higher that it might feel like, especially during one of its regularly-occurring temper tantrums.)  And my only consolation would be the $264.65 pushed to my side of the table for taking on the puts.  In this case it would be great for the puts to be uncovered.  Who wants more ultra volatility shares short than they can handle during an unexpected and vicious volatility spike?  As you can tell, I have UVVS on the mind frequently; I have to keep it in mind to avoid being ensnared in a UVVS to a degree that it'll harm me.

To that end, while typing up this post, I closed out the 200 shares you see above, making my puts, once again, under-dressed for the weather.  I wish I could say I caught the bottom of the UVVD (unexpected and vicious volatility downplunger) that took place from 2:00-2:40 today, but I got most of the move.  I'll try to scalp some more day trades or short-term trades before the expiration of my short puts and see if I can offset any loss I'll incur, should the puts turn around and bite me with the teeth they're showing me right now and have been showing me pretty much since the moment I took them on.

Getting the 2017 Party Started

This post may also be seen at: http://www.cboe.com/blogs/options-hub/2017/01/11/getting-2017-party-started

The cliffhanger last time involved the $6.50 put for UVXY expiring this Friday, January 13th.  I had sold twenty contracts on January 4th for premium received of $0.18 each.  It turns out that I got nervous about this put when UVXY touched 6.57 later that day.  I knew I had time, but I also believed that the nature of UVXY was not on my side, and I began plotting to trade out of these options and eventually replace them with more advantageous ones.

It turns out I didn't have to wait long.  See the dip in option price the next day wherein I and apparently just a few others traded at eighteen cents, thus ending my obligation with this option before the price took off again for higher ground through today.

What happened to the 1,400 shares of UVXY (which, as you'll recall, made these options partially clothed, although uncouthly underdressed)?  After buying back the puts, I witnessed UVXY slide down an intraday hill to the low 6.70 range until I could not stand feeling "out of the action" and I sold 600 shares short at 6.74.  Ironically, this brought me up to the grand total of 2000 shares of UVXY I would have needed to support those puts as fully covered.

Right now, (as I write on Wednesday, January 11th around 3PM), UVXY is 6.17.  So what have I spun from a 57 cent drop in UVXY since January 5th, four trading days ago, when I had 2000 shares short at that time (but, you'll learn, I no longer do)?  Get out your calculator and you'll figure that, had I simply held those shares short through this moment, I'd have an $1,140 profit just on those shares.

The next day, January 6th, I bought the most recent 600 shares back to cover, immediately regretting it, but netting an even $100.  The regret stemmed from the additional gain I could have realized by waiting until later to close the short.  I then shorted other securities as a balm to the pain, but came home with nothing.  I usually don't detail such mundane happenings, but if anyone wants to see it, the combined escapades that day looked like this:

 Before that day was over, witnessing UVXY dip all the way down to about 6.23 and back up, I shorted it again at 6.50, only "losing ground" by about four cents from my last transaction in which I had closed it at 6.54 in the morning.  What happened after January 6th?  Only two full trading days elapsed after that, and today is still in progress, but the transactions were too numerous to narrate full stories on.  Instead, I'll give an accounting, excising another group of failed TNA shorts.  If anyone really wants to see that embarrassing sub-story, it's right here:

Here's the accounting breakdown:

So, with $200 slipping between my fingers there, let's detail the remaining transactions to date, first the UVXY and then some TVIX short I acquired on a few different dates so far this year.  The UVXY:

The green box shows the profit taken on the 600 shares shorted as an attempted continuation of the same short started when I closed the options.  The red-ringed lots represent the closing of shares shorted on the first trading day of the year.  And the remaining lots were opened this week and closed this week, through today.  At this moment I have no short shares of UVXY. What's not shown in that chart is that I was unable to borrow some shares for shorting today, and used TVIX as an alternative, and I also used TVIX intentionally two days ago to add to an existing pool of TVIX shorts I began accumulating before the year started.  The lots sold short this year were transacted at the following prices:

TVIX is currently 6.68, so my unbooked gain on the above is, right now, $560.  Disregarding profits I took on shorts started on the first trading day of the year, I only brought in a little more with all of my shuffling of UVXY shares, and would have been better to just hold the 2,000 shares since January 6th.

One of the goals I achieved today, however, was to lighten my exposure to combined TVIX/UVXY short shares by cutting it in half from a somewhat overweight position at the end of yesterday and a very overweight position this morning as I "doubled down" to try to get out of yesterday's "mistake" faster.  It worked; I got out unscathed, but as of this writing, UVXY/TVIX continue to drop along with VIX wallowing around in the low elevens, so I'm looking at profits missed out on today and feeling irritable.  I have to remember, though that it's essential for keeping my account intact that I make sure I'm out of the way if the train changes directions.  To mix metaphors, I'd like to have fun at the party, but it's more important that I get home from the party alive, even if that means leaving while it looks like the party is in full swing. 

Follow the bouncing... Arrow

This post may also be seen at: http://www.cboe.com/blogs/options-hub/2017/01/05/follow-bouncing-arrow

Yesterday, January 4th, in order to start out the new year with some degree of nail-biting (figuratively) drama, I hatched a little plan involving some short shares of UVXY.  The first thing I did was to buy to close 400 shares, reducing the 1,800 I had opened the previous day to 1,400 in quantity.  My plan was to re-short those 400 shares later in the day or on some upcoming day, along with 200 more which I envisioned as a day trade.

Then, thinking about the 1,400 short shares I still held, plus the 600 more I planned to acquire soon enough, I looked at premium for puts on the 6.50 strike of the same security.  As you can see from the graphic below, UVXY was trading in the $7 neighborhood when I sold 20 puts for the $6.50 strike and the January 13th expiration.

Of course, I was putting the cart partially before the horse, since I hadn't yet made another short sale of shares, so only 14 of these contracts were considered "covered puts" and 6 were plain old stark naked.

See chart below for the timeline of my trading so far this year.

Here is expanded detail of the put trade.  This chart tracks the exact contract.  Last week, trading price was just a few pennies.  This week, prices exceeded twenty cents.  My price received was eighteen cents.

Several courses of action are available to me at this point, particularly regarding the short puts.  I could keep them and hope they expire worthless on January 13th.  This would require UVXY to close above $6.50 on that day.  I could trade my way out of the puts, by buying them to close and making a profit, breaking even, or taking a loss.  I could leave six of the contracts naked, or I could short more UVXY shares to make some or all of the contracts covered.  Of course, I could buy back any number of my existing short shares to make any number (including all ) of my contracts uncovered.

Will UVXY change in price today or in an upcoming day such that I'll feel motivated to close my short puts?  Will it appear safe to leave those puts open through expiration?  Since I received eighteen cents in premium, UVXY could close as low as $6.32 (that's $0.18 lower than the strike of the contract) on expiration day and I'd be able to realize no loss upon covering the short shares just before expiration.

Will UVXY rise enough that I'll decide to re-short the shares I recently closed, and will I want to short even more shares?  Or will it rise so much that I'll want to keep watching it for a higher entry point?  Will it continue to sink, yet I'll decide to short more UVXY shares anyway?  Or will I close all of them?  These are all questions that will be answered in my next blog entry, as the near future unfolds.  If you've read this far, you must be following along, and if you've been doing that, I'm glad!