Hey y'all I know this has probably been asked 1million times but what are yalls opinion on selling OTM calls on UVXY? I currently am paper trading the idea in my account. I sold an April 30 call for 1.23 credit. With the decay of the ETF and time decay of the option seems to be an "edge" ??. Also seems as if puts are really cheap and calls really expensive ? Thxs
That certainly looks like that eh? Why do you think that is...? High IV, which gives the upside a higher chance... and upside can potentially be over 100, while downside is limited towards zero...
yalls opinion on selling OTM calls on UVXY? <-- High Risk! Your cousin Bubba has been drinking excessively (as usual), but is behind the wheel (again)! -- You may survive this trip, but odds are stacking against you. Or stated more nicely: It works until it doesn't! I don't yet follow your observation "puts are really cheap" <-- Can you help clarify? I mean no disrespect. There is ALWAYS more to learn. (referring to myself)
No, that's not necessarily how it works.... Look at it this way..... min=0; max=120 (120 is IMO achievable, though not likely). Now, UVXY is at 20. So down 20 to min level or up 100 to max level... even if the probability that UVXY goes up might be lower than it going down (due to ETF-decay)... it can go 5-fold. So, because the IV of UVXY is very high (100+) and because of the upside potential..... calls are priced higher than puts. The probablity/payoff curve is highly skewed to upside. I was talking about the IV of UVXY. You need to thorougly understand how UVXY works, and how the options on UVXY works.... In short, UVXY is based on the daily return of the average 30-DTE VIX futures (combo of the two nearest VIX futures). The VIX futures are based on the forward volatility/variance of the next 30 days of S&P500 futures. So roughly speaking... UVXY March options, expire based on what April VIX future is... which is the 30 day implied vol between April and May SPX options. With UVXY options, you are trading 2x IV of IV of IV of SPX.... so 2x a 3rd derivative.... If you don't follow this... than don't trade it... PS. also try to understand the reason for this ETF to drift downwards... and also see that it can actually start to drift upwards....
There is a ton of convexity to the upside. Look at how the VIX behaves. This behaves an order of magnitude greater. You will make money regularly. And, once in awhile get little flare ups to make you scramble. Then, one morning ...boom! Your dog is gone and your penis is in the toilet! What were we talking about, again?
Aah yes... the WTF moment!!! Not to be confused with the "Hell yeah I am tha King!!!" moment.... Both should make you realize the fallacies of your own abilities....
Selling a call or a put with the sole reason that you think it can't get there is a poor trade. There are those who blew up their accounts in 2011 and again in 2015 for all the reasons mentioned above. I trade volatility like a dealer in blackjack....look for a trade where the odds are in your favour, bet size appropriately and never have open-end risk. Make $$$$. Rinse and repeat knowing that you will eventually lose a hand.