The Bull Market Lives! Long Live the Bull Market…

…or at least through the end of this week.  After that I’ll be ready for anything else, but please – whatever is keeping volatility low – stay stable for a few more days.

My escapades this month started on August 3rd, when I thought I’d draw a line in the sand for UVXY.  See chart below. UVXY was in the $25 range that day and its fraternal twin VIX was in the low 12s. I calculated that UVXY was unlikely to sink as low as $24 during the next two weeks, and wrote puts at that strike for 93 cents.  Later in the day, those puts eroded in value to just 63 cents, and I could not pass up such a quick bargain, so I rang the register and put the proceeds right in the till.

Later in the afternoon, I looked for better premium on an even more attractive strike. After a jog around the park, UVXY took a solid nap, dropping back down to its morning levels, and I went searching for premium, this time deciding to be a little safer (since my estimates can be wrong).  I wanted to hold this one until expiration (that’s usually my intent) and get more than just the icing off the cake, as I did earlier in the day.  So I chose a lower strike this time, $23.50, at the same expiration nearly two weeks away, and got a price very close to the one I had just paid to close the previous, more “dangerous” contracts.  I considered it basically a “free” move to a safer strike.  To make it seem like a deal even better than “nearly free,” I wrote more contracts.  I wanted more money than I would have gotten had I just held the previous set of contracts, and I was willing to further my own willful delusion by taking on more risk (writing more contracts.)  At 63 cents each as payment, and taking on the risk of being assigned $28,000 worth of UVXY, I stood to make seven big bills for my time and trouble.

I could have held until expiration day to get every last penny out of the trade, but with two days to go, once again I could not pass up the bargain of closing the trade for just two cents when VIX did a one-day-only spike up into sixteen land.  UVXY startled itself up to $30 in sympathy, options traders got a case of the vapors, and someone left those contracts on the block for a price tag of just pennies, so I threw two pennies in that direction and left town twelve contracts lighter.  Subtracting commission, it turned out to be exactly the quoted figure: Seven sheets of double-digit currency.  So that was the end of my UVXY activity in August (so far – barring any new weird ideas I might get.)

Going back to the first week of August for an explanation of my motives:  While VIX languished around in the 12 range and no one had a foggy clue what SPX was going to do, I saw nothing to do but engage in the above hilarity plus accompanying chuckles called “selling SVXY calls.”  Note that the below chart is, not coincidentally, pretty much a flipped version of the one above.  On August 4th I got it into my head to write 99 calls and someone else was handing out $2.20 to buy them.  I kept those under my hat all the way through today, when I decided that in the same way no one knows what SPX will do, there is no way in the dickens that SVXY can be counted on to do anything in particular for even the next five days, and I’d be willing to pay 20 cents per contract to get out of SVXY’s way.  Pocketing a hefty “worrying fee,” of course.  The worry coming from the way SVXY twice kissed $97 or thereabouts, right after I wrote those “take your chances” tickets.  Writing calls on SVXY always seems like more of a sweat-inducer than writing puts, if only because SVXY tends to march up the hill steadily with almost no encouragement under all but the most worrisome market conditions.


Well, that’s the wrap-up on my early-August attempt to get the leftover crumbs out of the pan where the great summer VIX cake was baked and served and all but forgotten about by now, with only some sagging volatility indexes left behind to make us wonder if it ever really happened.  Now, notice that so far these positions I opened and closed were designed to vindicate my thesis that volatility was not going to get much lower, or at least that the good-time party friends of VIX (my buddies UVXY and SVXY) could only go so much lower or so much higher (respectively).  That’s a hard way to make money, though, when volatility is already low.  Around a week ago I shifted tactics, but didn’t really shift sentiment.

Unless and until there’s some sort of spike in volatility, I’ll take the premium where I can find it, and I’ll risk being forced to take on water if I have to.  Being paid a bonus to buy SVXY at prices not seen all summer other than during the July VIX bake-off is a worthwhile venture, in my estimation, and so is picking up bet money on the “do not cross” lines set at various points south of the current trading price.  On August 11th and 12th I wrote puts on $85, and then, balancing the likelihood of being assigned shares with the compensation I’d get for the inconvenience (of taking on nearly double the SVXY I’d be a proud owner of – I’d be a nervous owner if assigned all), I wrote a few more puts on $77.50.  Premium on the former was $1.65 per contract, and on the latter, a whopping (proportionally speaking) $1.45.  The reason the premium was so decent on the 77.50s is because anyone who comes along for the ride must chip in for gas.  No, really – as depicted by the blue arrows, I took advantage of an overnight share price drop to pick up the last few.  Follow along for a less wordy (because I’ve already explained it all) installation documenting the conclusion to this story pretty soon, as the story must end before the dates stamped on my only two current positions: Friday the 21st.

  • Spike Vixen

    This is certainly an interesting trading month. I found your navigation through the rough waters a fascinating read. Keep up the good work and please keep posting updates !