VXX is going down and down. Could it go to zero? If this is the lowest point ,could it be a good opportunity to buy and hold long term. ? TNA option premium is very high. If I have a covered call , will my risk be supplying 300 shares or just normal 100? Thanks
It's important to understand how "backwardation", "contango" and "reverse splits" will effect the VXX. Questions regarding VXX have been asked about on other threads. I suggest reading the prospectus and fact sheets: http://www.ipathetn.com/product/VXX/ Regarding "buy and hold", since its inception in January 2009, the VXX is down close to 60% (as of the end of February 2012), even though there have been significant spikes in volatility along the way. In other words, no long term investor has made any money holding VXX as part of a directional buy and hold strategy. Of course, with any product, past performance is not indicative of future results. I discovered the hard way in my retail accounts in the past that buying inverse/leveraged/derivative types of products can be tricky. Selling upside calls can minimize losses, however the value of the overall investment can decrease more rapidly than the inflows of the call premiums. It's definitely "buyer beware" when it comes to certain ETFs and especially with ETNs. One strategy is to daytrade it, both long and short, as it does huge volume and has many intraday swings. Just my two cents.
Thanks for your reply. what about TNA? i have twice done iron condor and received good premium. It seems it is not volatile. In covered call will I be reqd to provide 300 shares or just 100 as usual. Thanks.
Regarding options, 1 contract represents 100 shares. The 3X feature is related to the fund objective of the Russell small cap index, not to the options. Adjustments usually happen with a split/reverse split. Again, I suggest reviewing the prospectus and fact sheets from the issuer: http://www.direxionshares.com/etf/sc_bull_3x_shares.html