Baseball, hot dogs, apple pie, and…VIX shortcake

If you can’t wear shorts in the summer, when can you?  At the time of my last writing, I was showing off a pair:  TVIX and UVXY, which everyone knows are really just two legs of the same thing (for my purposes, anyway).  Even though I had donned one leg before the other (I put my pants on one leg at a time, just like everyone else), I took them both off in one motion, as such:

But only one day later, my thoughts were consumed in the following manner:

From WikiHow’s “How to Short Sell” http://www.wikihow.com/Short-Sell


Re-thinking my June 11th thesis that volatility was so low that it wouldn’t stay that way, and that VIX shorters would be sorry, I pictured instead a basket of money brought in by selling people a medium-sized raft of TVIX.  Knowing that the basket might have to be carried over a bumpy ride (anticipating that the position might move against me sooner or later or even immediately), I went ahead and re-shorted anyway.  This time it was all TVIX, and 2400 shares short at $1.60.

All the while, my trading partner and I strained our brains over how to get rid of our SVXY position.  Those who have been following this saga as far back as June 8th will remember that we sold 65 strike puts on that day that resulted in the delivery of 800 shares to our account a few days later.  What started as a “take cash now, think later” move has turned into a complicated maneuver to try to get our money back.  Of course, we could just wait.  I feel confident that the value will come back and we could realize a profit on the shares at any time after that, but I don’t know when that will be.  So we started counting up the transactions by which we could offset any loss upon selling the shares and call it something like even.  So far the positive closed trades connected with these 800 shares of SVXY, put to us at $65.00 per share, are as follows:

In order of date closed, that’s the original sold puts for $1,866.56, some calls opened June 23rd that expired worthless the next day for $307, and some calls opened today at 10:58 AM and closed at 1:05 PM to bring in $173 (today’s trade pictured below:)

Later in the afternoon today, we strategized on how to get rid of the SVXY we now wish we didn’t have, and discussed at length how badly we wanted to ditch it, and what price/benefit ratio was acceptable (in terms of time, missed opportunity, freedom from aggravation, lost pride in bookkeeping, etc.).  Momentarily we had forgotten about the $307 one-day trade, and our math went something like this:

If we end up having our 800 shares of SVXY (for which we paid $65) called away from us on July 29th at $61.50 per share, we’d book a loss of $3.50 per share, or $2,800.  To make up for that, we already had (as circled in green above) $2,347 in profits (although we had forgotten about the $307, so we used the figure of $2,040 in our calculations.)

We settled this afternoon upon the strike of 61.50 for the July 29th expiration because we were able to get $1.00 per contract, for 8 contracts, bringing in just under $800, and we added that to the $2,040 we figured we had already brought in, which would total $2,840.  This would offset nicely the $2,800 loss we’d stand to take upon having the shares called away at that strike.  So we went ahead and sold 8 SVXY July29 61.50 calls for $1.00 each (placing the order at 2:59 PM and seeing it execute when we were out doing other stuff at 3:30PM.)  Now that we remembered (upon writing this post) the $307 booked on June 25th , it looks like we’ll come out ahead by around $300 if we get rid of our SVXY to a hungry call-buyer two weeks from now, and we’ll be able to forget the whole 1.5-month debacle.

In my next post, hopefully I’ll be rid of the SVXY and I’ll describe at that time why we’re moderately in a hurry to get rid of it and the strategy we plan to replace SVXY put-selling with.