Yes, I am asking for help/options/criticism but I expect to see arguments that go beyond labels such as "reckless" or "risky". It it's reckless, explain why. With numbers and scenarios. Historical references would also help. BTW, I am not sure what you mean by "model". Create rules? Sure: wait for VIX to spike to 20 or above and sell SVXY put 10% OTM. If assigned, sell calls. Don't bet a farm on it. Say, total risk should not exceed 5% of one's liquid networth.
. If the market sells off the implied vol on your puts will go cookoo bananas as it does in the VIX. The ETF won't perform the way you think it will. With all the contango to be realized in the last 4 months, it received none. It seems it's more geared to implied vol shift than carry. Do you really want to sell calls on vol at these levels?
Today? Today SPX is down 13 and SVXY is a little below 90. Mid 70 happened in the end of Feb and in mid April. Both times it recovered. Now, let's distinguish between VIX futures and SVXY. SVXY gains from the roll yield even if VIX does not move much. Because of that SVXY puts have a higher chance to stay OTM and expire than VIX futures calls that are tied to a particular contract and don't benefit from the roll yield. Again, if VIX futures spike they don't stay up there for a long period of time, so any short position on VIX related instruments taken at the time of a spike has a higher chance to succeed. And you're right, this is not a f*cking stock. That's why it can go down 20% one day on some event-driven sell-off and recover in the next day.
That's why I am more inclined to sell SVXY puts when the market sells off rather than when it's rising: more premium for the puts and lower strike. VIX it up above 16 with the late day sell off. A little higher (above 20) and there may be an opportunity to go short on vol. So, how will SVXY perform after the sell off is over? Will it recover or stay low?
OK, let me try to "help" you. First of all, I think atty and the rest of us get annoyed by the intellectual laziness that permeates this entire message board. Yeah, sell premium. Nice. It wreaks of total lack of effort towards finding a real edge. So you can expect to get some harsh feedback. But let me walk you through the first door. These ETF's don't work OK? They don't. Your problem is not a 3% or 5% or even 10% selloff. The inverse ETF's can handle that pretty well. In fact, any normal price behavior will be fine. What it cannot handle, and history adequately proves this, is when you get large one way outsized moves. That's when these ETF's go to shit. And almost every ETF document I have read ( I haven't read all of them) states in plain english, buyer beware. They make absolutely no claims to them ever working beyond an intra-day basis. So if they go to zero because the ETF fails or simply compounds negative returns upon negative returns, there is no recourse for you. Screaming to your broker that it didn't do what it was suppose to do is not going to work. Any outsized move to the downside will kill this ETF. Did I say single digits earlier? Let me re-phrase, this thing will trade in pennies if we see an outsized move. Don't believe me, pull up a chart of the TVIX. They have reverse split that thing what, 10 times. And no, it's not simply the contango that killed it. In fact, the contango effect is rather small. It's asinine beyond all logic to sell juice in these to pick up a few hundred bucks risking 9k per lot. It basically disqualifies you from trading on an kind of an intellectual level. Let me say this one more time, these ETF's (and yes, this is in the actual offering documents) are meant for INTRA-DAY trading only. Not holding for long periods. If you really want to make some money in them, buy the downside puts a year out. Stick a fuck you offer out in the sky somewhere. And one day in the not so near future you'll be filled.
I would agree wholeheartedly with everything you've said if you were referring to long volatility ETFs/ETNs. When I look at charts of TVIX or VXX all I can see is a massive short opportunity. Pick any point in the past and you will most likely make money on that short position in a year from that point. Short term may be volatile, but in the long term long volatility ETFs are design to go to zero. I think TVIX prospectus says it explicitly. If long vol ETFs go to zero, then short vol ETFs should go to the opposite direction. And they do. Again look at a long term chart of SVXY, XIV or ZIV. ZIV is actually better than the other two but it's not optionable. So, far I don't see how they can lose a significant amount and not recover if their underlying (VIX futures) always comes down after a spike. Yes, there may be a "black swan" event waiting to happen that would bring the value of S&P500 to single digits. That, of course, will also decimate SVXY and the like. But what is the probability of it? And if it indeed happens, other possible economic losses will surly be greater than 9K lost in SVXY bet. As for buying puts, I consider buying puts on VXX during VIX spike. SPY puts may be a good hedge against a "black swan".
No, your understanding of this stuff is totally flawed. Long vol products don't go to zero because of the contango, they go to zero because of persistance. Why do you think FAS lost 95% of it's value in 2008. There is no "contango" in financial stocks. These products don't work when long term trends persist.
i would stop talking about what you think you know.. and start reading more.. http://blog.quantumfading.com/2009/06/01/leveraged-decay/
go with your instincts. the wimps here are still posting and struggling to make a living after years of not swinging for the fences. they will all die broke. take a shot , you only live once.
I think it's best to wait until a much higher VIX environment to do this type of trade (e.g. futures backwardation). And then, don't sell puts on this product. You can buy this or the XIV etf, but only short term because management fees are very bad. I prefer doing long put spreads (or short call spreads) on VXX.