Trimming VXX Calls, Playing With House Money


I am selling the February VXX $27 calls for $2.75.

This represents a 36% gain in a little over a week.

It’s a good trade, but let’s not get greedy, these options move a lot and have a structural disadvantage.

I’m essentially playing with house money on the February VXX $32 calls after buying back in puts last week and selling the $27 calls as noted

“Luck is what happens when preparation meets opportunity.”

Seneca (ca. 4 BC – 65 AD, Roman philosopher, dramatist, and writer)

Make no mistake about it, trading volatility options requires some luck. I don’t do it often, but when I do, I do it to have a shot at hitting the jackpot. Right now, I have a chance to hit a jackpot with none of my own money invested. Freerolls are the best. 

If you have been following along on these iPath S&P 500 VIX ST Futures ETN (VXX), then you know that we are doing pretty well as of today. Last week I bought back the puts I had sold for about a 30% one week return. Today, I am selling the February VXX $27 calls. I got $2.75, which is about where it is now. Because it closed near its high of the day, it is likely to open up on Tuesday.

Why do I think it could trade higher near the end of the day? Take a look at stocks and Bitcoin. Stocks are getting beaten up and so is Bitcoin. In a recent article, Heisenberg summarized how cryptocurrencies are impacting the market. 

Spillover Risk: Cryptocurrencies May Pose A Very Real Threat To Stocks And The Economy

I have a take as well after listening to another Millennial tell me how the world and financial markets work. Here’s a sound bite: “I think it’ll (Bitcoin) go to 30-50,000 by the end of the year because it’s a store of value.” That’s what he said. He was 3 seats to my right in a poker tournament. I couldn’t even argue. Anyway, he got into a habit of betting into me and well, I learned him something about poker. 

Kirk is going to WSOP(I’ll be playing in the WSOP Circuit Event in Milwaukee from February 2nd to the 12th and have now secured my seat into the WSOP Monster Stack in Vegas in June. I’ll be holding an investor meeting that week on June 22nd, so if you’d like to come on out, go ahead and make plans, I’ll have location details come April.)

Anyway, my full take on the cryptocurrency/Bitcoin world is coming any day now. Here’s the short answer, the only cryptocurrencies that survive will be the ones that banks decide to use for wire transfers. It doesn’t make any sense that wire transfers are not instant. Blockchain will be used to make wires instant. 

The Millennials, well, they gots some comeuppance coming. They are about to get schooled on waking up with less money than they went to bed with. If you haven’t been listening to me tell you to get to 25% cash in your portfolio, you might too. It’s not a bad idea to click it up to about 37-38% cash now either. The odds of a 20% plus correction just keep increasing.

Even if we don’t get a 20% plus correction, remember, the stock market is still very overvalued and everybody knows it. Well, everybody except “snowflakes” as Howard Gold pointed out today. Put your tongue firmly in cheek when reading this and don’t get offended.

Hey, snowflakes: Get on board the Trump market train!

Hear me now and believe me later, the actions that the Trump administration has been taking, the likelihood of the new Fed Chair being a rube and China’s moves in the oil and currency markets are going to create a lot of headaches really, really soon. More on that later, but not much later, soon. I’ll be publishing an article titled “China, Oil and the End of the Petrodollar” later today. By tomorrow, I’ll have something out on why the tax breaks, looser financial regulation and hindering alternative energy will lead to a big recession in a few years. This will be the start of my series describing the “Crash of 2020.” 

So, why do I ramble on when I started talking about volatility? Because, we have February $32 VXX calls and now they’re basically free since I bought back the puts last week and sold the $27 strike price calls today.

We have a chance right now, to wait and see if we get a spike in volatility and it costs us nothing if we wake up in a few weeks on the third Thursday of February if the world has become perfect and volatility is at a low again.

So, let’s talk trading these VXX vehicles. If you close everything Tuesday, you’ll have made some mocey. I decided to only close the $27 calls because I’m trying to hit the jackpot on the $32 calls since they are free. These little trades are low risk because they are little, not because the underlying transactions are low risk, they’re not, they’re high risk. If I’m going to take high risk, I want a chance to hit the jackpot. I can sell puts on stocks and buy stocks to make low double digit gains. That’s not my goal with VXX options. The goal is to make a 100% or more. I’m not there yet, so I’m holding the $32 calls for now, heck, they’re free at this point. If I could play the lottery for free, why would I ever stop? {update: we hit a mini-jackpot on the $32s with the full 1% down day in the market. Most folks should have closed their calls with 100% to 150% gains. Those who didn’t get a “shut down freeroll” next week. We’ll see. Keep an eye out for another VXX trade with it plunging on January 31st and February 1st.}

Disclosure: I am/we are long VXX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I own the February $32 VXX calls. I own a Registered Investment Advisor – – however, publish separately from that entity for self-directed investors. Any information, opinions, research or thoughts presented are not specific advice as I do not have full knowledge of your circumstances. All investors ought to take special care to consider risk, as all investments carry the potential for loss. Consulting an investment advisor might be in your best interest before proceeding on any trade or investment.

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