VIX Covered Calls?

You pick a stock that WILL move sideways to higher.

 

They can drift lower during the expected "Holiday Doldrums" and then perk up again in January. We'll see.

 

Thanks, you have pointed at a good stock.It is unlikely it will go down much. Hasnt done in last 5 years. How to find other stocks like these for covered calls. Thanks again

 

1) ?.....Don't trade a particular option against a different but related underlying instrument. There are other quirks/subtleties/nuances to contend with between the contracts that will seldom work to your advantage. Trade the VXX versus VXX options only, not VXX versus VIX options or something else.
2) There are "better" ways to express a bearish opinion than short-selling (DITM) deep-in-the-money calls. You can tie up too much money in that position compared to doing other spreads or outrights.

 

I think by explaining my initial thought, you'll see better what my intent was with this trade, although I'm pretty sure there is no clear cut way to capitalize on it without being able to directly trade the VIX cash value.

You can sell the VIX Jan 2011 $10.00 call for $13.70. At today's close of the cash value, that is about $3.00 worth of premium. As long as the VIX cash value doesn't fall below $10, you keep the premium and your shares get called.

It seems though that there is no way to really accomplish this trade that is worth the risk.

 

what happens if in January vix is 25? or 30? or 35? lol

of all the calls in the world, selling naked vix calls is the last thing i'd do.

 

Why did you select that option?

 

If I were able to actually buy the VIX, the January $10 call would give me the most downside protection.

The VIX could go up any mount, and I keep my premium, and the VIX could go down almost $10 before I lose any money.

 

1) The JAN-$10-call is practically trading at a discount to the JAN-futures. There's no "time value" in it, even though VIX options don't possess time value in the traditional sense.
2) If you do a covered-write there, you're almost "locking in a loss" at inception.
3) You need to be, (ATM), at-the-money in order to short-sell a call-option that has some premium in it and give yourself some profit potential.
4) The bid-ask spread widens out on the (DITM) deep-in-the-money strike prices.
5) For academic sake, you may want to use the SPY or eMini as an inversely-correlated, underlying instrument to develop the trade another way and reduce slippage.

 

1. Do VIX options close to the VIX cash value, or the VIX futures value?
2. This scenario only works out if you can actually buy the VIX- when you compare the vix option prices to vix futures, it's quite an awful trade.

In general, I want to stay out of futures, as they also expire, which is not what I'm looking for. VXX only rose 4.54% today when the VIX rose 12.30%. I think I will just wait to see what Credit Suisse's new volatility ETNs will be like.