time value will decay faster on your long put. vega sensitivity will inflate the short rear month put if VIX spikes as well (since IV of vix will shoot up as well). furthermore you have to be realistic about the difference between the months you expect this to get to. just looking quickly, it looks like +.25 is a realistic price target for the spread. look at the chart below. i think we're at somewhere between -1.00 and -.150 right now. for a $1.00 profit (on the options spread you suggest) at most, this looks like an aweful lot of effort ... especially having to factor the complexities of the option spread. And another problem with playing it with puts -- what if the calendar repairs itself (ie rear months go into contango) as you say, but vix stays slightly above 20? You lose all of your long premium, and have to likely close out your spread at breakeven at best (since that time decay kills your options spread). playing the calendar on -sep/+oct here has had about $1500 of total risk per spread if you long it [with volatility blowing up]. If VIX blows up even more, you'll see even more risk in doing the futures spread. (another $1500? with similar magnitude adverse vix moves) Maybe you can do something of a hybrid to hedge from blowing up, ie 1 -SEP/+OCT VIX futures spread, against ie 3 long SEP 25 calls. $750 for the calls will definitely cover your short SEP blowing up, but a positive calendar move for your spread will get you a $1500 gain (so total of $750 profit, if vix closes under 25). And of course there is a *remote* possibility vix stays elevated and you get an expiration above 25, while you get the calendar move you anticipate.
Any trade suggestions for VIX? Currently in my account: SHORT - AUG 10,11,12 - total 25 contracts SHORT - SEPT 10,11,12,13 - 60 total LONG - FEB/MAY 10,11,12,13 Currently my account has sustained large losses, can anyone recommend the best way out of this? Sorry to ask on a forum, but I'm out of options. Do I: 1) Close out all the positions and take the loss? 2) Roll into Sept? (what worries me here is that the Sept contracts will spike as did AUG and really cause some problems) 3) If there is another option I would like to know? Thanks
Oh my god, are you short calls at all those strikes? At what vix level did you enter these trades? If it's a sizable loss, I suggest you close it all out and just take the loss. Rolling doesn't get you out of this mess, unless vix drops profoundly from these levels. And I was ticked off about an aapl bfly profit I let slip out of my hands the last few days. Thank you for putting my minor losses in perspective. Good luck. ST
Speaking of the VIX, anybody notice the divergence today - indices making new lows, but VIX not making new highs. Interesting.
any takers on that divergence ? http://finance.yahoo.com/charts#chart2:symbol=[/url]^vdax;range=3m;compare=^vix;indicator=split+volume;charttype=line;crosshair=on;logscale=off;source=undefined