When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (VXX) - BUY
BUY the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) January 2021 $24 puts at $6.90 or best
Opening Trade
2-28-2020
expiration date: January 15, 2021
Portfolio weighting: 10%
Number of Contracts = 14 contracts
I am going to increase my short volatility position with a more conservative at-the-money strike price of $24 with one third the number of contracts.
I have two assumptions in recommending this trade:
1) The Coronavirus epidemic ends in three months, or at least the number of new cases starts to trend down.
2) Bernie Sanders is not the next president of the United States.
The Volatility Index (VIX) is trading at a two-year high at $50. Some 90% of the time (VIX) is trading between $10-$15. That means it is the best time to sell short since 2018.
In addition, the Mad Hedge Market Timing Index is at a very low 9, a 14-month low.
I am therefore buying the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) January 2021 $24 puts at $6.90 or best. Spreads on these deep out-of-money options are wide, so don’t enter a market order on pain of death. Use limit orders only.
Please note that these options have a 10 ½ month maturity. That takes advantage of time decay, which can be enormous with any kind of volatility trade and is working hugely in your favor on this trade.
We are also deep out-of-the-money which will maximize your leverage in this position and make the $24 strike very sensitive to any kind of fall in volatility.
For example, if the (VXX) drops back to the $13 level we saw last week, the value of these puts should soar to $14, a gain of 100%. The (VIX) would have to exceed the 2008 high of $50 and stay there for a prolonged period of time for you to lose money on this trade.
You may have to take a little heat coming in on this trade, especially if we have another 1,000 point down day on Monday. However, the (VIX) never spends more than a week or two at these hyper-elevated levels.
Risking 20% to make 200% sounds like a good deal to me.
Don’t pay more than $8.00 or you’ll be chasing.
This is a bet that the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) will not trade above $24.00 by the January 15, 2021 option expiration day in one year. All you need is a decline any time in the next year, the sooner the better.
If you don’t do options, sell short the (VXX) outright for a trade, which is up 63% since last week.
Here is the specific trade you need to execute this position:
Buy 14 January 2021 (VXX) $24 puts at………….………$6.90
Net Cost:………………………….………......………….….....$6.90
Dollar cost = (14 X 100 X $6.90) = $9,660
To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on How to Execute Vertical Call and Put Debit Spreads by clicking here.
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Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this.
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The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you.
The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don't execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile close to expiration.
If you don't get done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
