We have all seen the high levels of volatility in the market the past few months. I don't think it's going away until after the presidential election. Rather than buying options or equities to try to benefit from a reduction in volatility after the election and this earnings season, I want to sell risk and collect premium by using a call option vertical spread on VXX. For example, sell VXX call options at $55 strike and simultaneously buy VXX call options further out of the money at $56 strike. This will allow us to collect premium (straight cash baby), and know what our max loss / max profit will be for the trade. It will also be vega neutral, so we will benefit from the price of the underlying (VXX) declining, without losing value to the reduction in implied volatility (vega). We will also have theta (time) on our side, because we do not need the options to move to make money. If they slowly run out of time to expiration, that will be the best case scenario for our trade. Thoughts?
Love this so much I made it a strategy in the MGA Playbook.
With election coming up:
- VIX and implied options volatility have remained high for quite a while now, and it seems to be steady slash slowly increasing as we approach the presidential election.
- I have seen this on the past 2 elections, clearly this one is no different. The past two times, after the election, volatility dropped like a rock in the weeks that followed. I don't see any reason why this time will be any different, especially with the momentum that the S&P 500 has, consistently moving to new all-time highs.
- Instead of buying puts as we have done in the past, I want to sell risk to others like the smart money.
- I want to sell a vertical call spread on VXX. Sell VXX calls, and buy VXX calls that are higher strike price.
- This will give us cash and all we have to do is wait for them to expire. This also will make us immune to a drop in Vega AKA implied volatility. Our position will be Vega neutral which means we will benefit from a decline in price and the passing of time, without losing value to the decline and implied volatility.
- This also limits both our Max loss and Max profit, so we have a better idea of what to expect from the tree.
Poll Panic Profits
Fund: The Trade Desk
Proposing Member: Jason Cline
Date Proposed: October 14, 2024
Thesis
Election season tends to have high uncertainty leading up to it. On average, VIX has maintained a somewhat elevated position for the past couple months (since July 2024). The 200 Day SMA has been on a slight uptrend and the 50 Day SMA has been rising rapidly since August 2024.
vixchart2024.10.14.compressed.jpg
Tactic
Mechanism
Sell call verticals on VXX that expire post-election.
Timing
Hold through election when VIX will drop significantly.
Exit Strategy
Stop loss or post election.
