Jim: You could certainly put a limit order to get out of the VIX calls at a certain price which supposedly hedges your entire spread position if the VIX calls move as I hope/assume they would. If you are watching your positions you could also let the calls run and if they are worth close to intrinsic value you could actually make more on the hedge then the credit spread position (assuming calls go to $15 instead of $10.) so you might want to let them run a bit if you could monitor the positions. If you are afriad you might be away when the fecality hits the fan then you could certainly can do a limit order or a contingency order to get out if the VIX touches a value or something like that.
sure..sure...I have to give you credit for being able to yap for an hour...in another life you could be a preacher Nice job....
Coach: That's what I was thinking since sometimes I can't monitor my positions all day and I was thinking that time would be of the essence in case of a VIX spike. In case I was watching when the shitake hit the fan, then I could always decide to cancel the contingent order if I thought the calls could run higher than my limit order. Thanks for the input.
I have no problem with getting more credit for something that seems like a low probability. The only issue that i have with it is that once you apply this same approach consistently over the long term(2-5 years), i highly doubt you will have better results. It's based on personal experience, i've done similar things in the past where by putting more focus on the credit received takes attention away from the risk i.e. undermines it. If you follow this same strategy over let's say a few periods of losses(in this cases pretty big losses if not hedged properly) in between the winners, you will see what i am talking about if you measure the results against one another.
In all honesty I'm not sure this strategy would work over a long period of time...certainly not in 2000-2004...the swings would have whipsawed you all over the place. By the same token...while it works make as much as you can
I think this really depends on what your strategy is for adjustment. It seems that for the most part the traders on this journal prefer to roll the entire position when the underlying approaches the short strike. If this is the intended strategy then I would have to say that 5-10 point spreads are preferable. Under these circumstances I generally wouldn't open anything wider than a 10-point spread as it only decreases the profitability of the position without really increasing the odds for success. If on the other hand you intend to let theta do its thing and just bump the short leg back (without adjusting the long leg) if the underlying is too close just before expiry, then the wider spread will accomodate such a strategy, so a 15-20 point spread is preferable. JMHO.
The moment you find out it no longer works will be the time your port could give back years worth of gains though. Coach, although i agree that the upside could be as scary as the downside in aggregate terms but im sure you will agree that the pace to downside breakdowns is much swifter than any upside breakouts.
I think this is what is hoped for to make the VIX hedge successful. When it comes down to it, any fairly quick but steady, sustained move in either direction; the ones that are hurt the least are those of us who place our spreads closer to the underlying. Is that one of the reasons you like to trade the closer strikes?