VXX in a Trading Range

Breakdown: I sold the VXX December 40-39 Put Spread and 50-51 Call Spread for a total credit of $.65

Profitable – I make money on this trade if VXX closes between $39.35 and $50.65 by December 16, 2011.

Break-even – I break-even on this trade if VXX closes at $39.35 or $50.65 by December 16, 2011.

Unprofitable – If VXX closes below $39.65 or above $50.65 this trade will be unprofitable. The most I can lose is the difference in the strikes ($1.00) less the amount I sold the spread for ($0.65), which equals $0.35.

The reason I like this trade: I have been talking on my blog about selling premium instead of buying it. I think that the S&P 500 Futures and the VXX are in a trading range. I think the SPY it caught in the range of $120-$129 and the VXX is caught between $40-$50. I like this trade because I am only risking $.35 to make $.65 and in theory everday that goes by without a huge movement, my spread will lose “time” value. This is actually a spread I will be looking to add to if it goes up in value, because at expiration it can only be worth $1. I would love to sell more of this spread at $.75, $.85, and even $.95. Please feel free to email me with any questions regarding this trade at Andrew@KeeneOnTheMarket.com.


Andrew R. Keene