I’d say the following four issues must be accounted for and may diminish any edge.
1. Implied volatility premium (ever present)
2. Remaining time value (Theta decay is not just large, but is increasing)
3. Bid-Ask spread (2x if you’re going long, then selling back)
4. Transaction costs

I haven’t done specific calculations, but these factors tend…[Read more]

It’s just wild thinking through the levels of abstraction here: (1) Complex spreads on (2) options based on (3) ETFS ($VXX and $UVXY primarily) based on (4) front two-month rolled futures on (5) the VIX volatility index that tracks an (6) options chain based on (7) the S&P500 index of (8) common stock that denotes (9) ownership in a corporation…[Read more]

I’m trying to understand duration WRT to net short options, net long options, and VIX-derived underlying.

As you know, an important rationale for options positions is Theta time decay. When applied to to VIX-products like $VXX and $UVXY especially, it seems like even though options Theta decay is important for both net long and net short options…[Read more]

I’ve been trying to think of when it would be ideal to short bear credit call spreads vs. long bear put spreads.

It would seem that implied volatility rank (IV rank) would be the determining factor.

– If there’s been market activity that causes IV rank to quickly rise, such as a quick upspike, IV rank will be high and it favors shorting bear…[Read more]

Me too! I currently sell lots of options spreads on high implied volatility rank options 30-75 days out for dozens of companies. It requires a 4,000 line Python program I wrote to connect to the Interactive Brokers API run continuously run for scanning, filtering, and trade management.

I’m considering unwinding all of them and focusing…[Read more]

I just went short 30x $VXX June 30/35 Credit call spreads as a feeler. I plan to scale to 100x on this particular position. And consider doing the equivalent on $UVXY and/or other expiration months for time diversification.

Hey Andrew,

Sure. IB’s API can basically do all the crucial tasks that its desktop client Trader Workstation (TWS) can do, since it connects to IB through TWS. TWS has more capability like various proprietary modules, but the API is great for pure data stuff. I haven’t used other platforms besides ThinkOrSwim, but it seems the desktop clients for…[Read more]

Agreed. Sometimes those statistics may be worse than useless and may start to be super dangerous when the models are misapplied. Believing that the Normal distribution is Truth, then getting you face ripped off by (allegedly) “25 standard deviation moves, multiple days in a row” like Goldman ex-CFO David Viniar said.

$VXX Feb 28/33 Bear Call Credit spread
$UVXY Mar 10/15 Bear Call Credit spread

I’m primarily an options spread seller, so I had these positions on before I started looking seriously into this short VIX trade. They’re obviously feeling a bit of heat, but I have a bit of time on both of them.