Hi yall, I'm new here, but not new to trading. As I continue my learning about the markets I'm wondering about the VIX and how I should use that index in my covered put selling. A little background on myself, I'm 25 years old with a 10K cash account with margin..I started with 18,500 in the market.....I have learned a lot of lessons. I have finally started me make some of my money back but learning how options work. I lost my a$$ buying options when I had no clue or understanding of them. I am open to all criticism and ideas. Where should one with an account size like me be doing. I also only trade blue chips..which I know is hard to believe with an account size like mine.
The low Vix shifts the pendulum to buying options. When the Vix gets above 20, you can start selling premium. There have been many options that have gone up by more than 10x over the last three months. Traders that only sell premium have been killed over the last three months. It's good to understand how to sell premium but patience dictates to wait till the right time when market panic hits and the Vix gets above 20-25 range.
If you really want to sell options on the VXX and be rewarded for it you should sell calls on UVXY, or short UVXY cause it has a natural downside bias, that is way bigger than VXX, basically it melts over time and so do the calls. it is very easy to take advantage of, i think UVXY was trading at like 2500 4 years ago (split adjusted) of course it never actually traded at that price. IMO in general selling calls on leveraged ETF's or shorting leveraged ETF's is the easiest money in the world, provided you are decent enough at timing. Of course your loss is going to be much much bigger if you get the wrong side of this trade, but these leveraged ETF's just get destroyed over time, and the call options are even worse. Feel like i need to put a massive disclaimer, this is dangerous as fuck if you are on the wrong side so size accordingly.
Last year continued to buy long calls on AAPL while it was tanking and thought..oh it will go back up sometime. IV crush killed my calls. Also had a terrible trade on VRX selling bull put spreads and also buying the stock because it was cheap IMO
If you buy Calls and the stock is tanking I don't think it was IV crush. The stock didn't go your way regardless of IV. Also APPL went from $90 to $115 from Jun to Dec. If you were buying calls you should have made money. Methinks something else be up...
Actually, I've been selling premium every week so far this year and I'm ahead of the S&P. You can still sell premium with low VIX...you just might not make as much. Premium is based on implied volatility and not all products have the same / low IV. To the OP. 1) If you're 25 and learning about options, you're ahead of the game. I wish I knew about options at your age. For premium selling, I'd recommend TastyTrade as a resource. I learned about options through them first. I'd stick to ETFs unless you really like a stock. I've made most of my money this year selling puts on XBI. Although honestly, I would have done better if I just held the stock instead of selling calls once I got assigned on my puts. Still made money, but could have made more by holding...it went further than I thought. Only sell naked puts if you're willing to own the underlying. One thing about TastyTrade is that they seem to just blindly sell high IV. They don't really seem to do much research about the quality of fundamentals of what they are trading. I'm not sure how profitable their earnings system is...I tried a few earnings plays this week by selling iron condors and iron flys expiring in April and only 1 out of 4 (CRM) ended up being profitable the day after earnings. The others have a small loss, but may recover by April. Still, it seems like gambling to me. Options alone are not an edge. They are only a tool. Basically I see the order from low to high conviction on bullish play (reverse for bearish) as: <Low Conviction Bullish> Sell OTM Put Sell ATM Put Sell ITM Put / sell near money covered call buy stock sell further OTM covered call / sell further ITM option buy stock buy ATM calls / buy bullish call spreads buy OTM calls, but many anticipating a big move <High Conviction> So basically a really good trader is probably not a premium seller...there are faster ways to make money by buying options / buying stock. But selling options on ETFs and some stocks is probably a safe way to begin provided that you're always able to take assignment on whatever short options you have open.
There's a reasonably simple way to get a working answer for yourself. Visit the CBOE website Product section, and compare the performance various Buy-Write and Put-Write Indices with that of the VIX. You can download the time series data and run a regression using VIX as the independent variable. If you're not up to that then just chart them together and eyeball. Perhaps counterintuitive to some, selling volatility risk premium is a better bet (RvR) when implied vol is low. Anyway, I'd wager that your skills and abilities in analysis, trade selection etc will influence your P&L to a far greater extent than any nominal level of the VIX.
It was a lot of rookie mistakes. No stoploss/no plan.....I didn't even know that options loosed value overtime !!!
I think it helps having multiple strategies that work for different market environments. Using technicals, sentiment and market profile have helped me determine the market environment. Since the election momentum has been the highest yield. There are many articles on momentum strategies...fairly easy to implement. I usually go with high octane products...i.e leveraged ETF's or VIX products. These are trades that you jettison at the first sign of trouble. I have traded VIX products more frequently and I am considering giving up on selling options altogether in favor of these instruments. There are many intraday opportunities for VIX....as in Trump is giving a news conference and fear increases...good R/R. Finally, I have a passive portfolio of high quality, low volatility etf's...that historically outperform SPY by about 2-3%...when the market is crashing...I buy more of those ETF's...and maybe i'll swing for the fences with some high risk stuff but a small portion of my account. With regards to Tasty Trade...you pick out what is useful and discard the rest. Seeking Alpha is also helpful...lots written on Volatility.