Thursday, February 16, 2017

Shorting the Spike in $UVXY with a Call Spread

If you read yesterday's post, you saw I made a bearish bet on $UVXY, which is more or less a bullish bet on the market.  I got stung a bit, although it was done with options that don't expire until next Friday.

I was taken to task a bit for not using the correct terminology on $UVXY and the $VIX, to which I will plead no contest.  For my purposes, it's not important to identify the how the products work exactly.  I don't need to understand the physics of gravity to know I will hurt myself if I jump off a building. 

With that out of the way, $UVXY did spike this morning, and rather than wait, I sold another call spread at higher strikes.  Putting on more risk but hoping for a drop as the markets quiet down for the weekend and contango kicks in.

Sold the $21 February 24 Call
Bought the $25 February 24 Call

I got a credit of about a dollar again.  Price of the underlying was $20.80 at the time I put it on.  The price jumped to $22 before closing at $20.11, so I am ahead on this trade at end of day, but behind on the one I made yesterday at the 19 strike.

A word on liquidity.  I closed out a trade today I didn't discuss when I opened it on $RH.  I had sold the 26 strike and for a while I was looking pretty good, as the stock dropped below $25.  I didn't take it off with a win because I couldn't get a good price because the option was illiquid, hardly any bids.  It's teaching me to focus on activity traded options.  Even if I see a very good deal, I may pass if I can't cover when I want to.

As it turns out, $RH got a buy recommendation and the stock jumped over $27.  Lesson learned (hopefully). 

Good luck trading.

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