Learn how Mark trades butterflies?HERE.
I don?t know if it will happen today or the next day or sometime in January, but VXX will rise off the mat again.? The poster child for decaying products turned in another one of its stellar performances in 2013 with the shares down around 66% on a split adjusted basis.? Noteworthy as well is that the 30 Day IV is in the basement too at around 41.99.? You can easily buy IV for VXX in the 20?s and 30’s on very short duration.
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LivevolX (R)?www.livevol.com
Now what do we do?? The paper is telling us that no one expects too much out of VXX in the short term.? Roll yield will hold up the rallies and a 13.13 VIX will hold up the downside.? In short, VXX is in a fugue state that it might not come out of in 2013.? Since volatility does not trade like an equity there are only so many things VXX can do short term.
VXX ?is what I call long term crap (yearly performance) but short term gold (note the big white arrows above) depending on the conditions. ?Vol is very cheap to short here so you need to depend on future decay to help finance a short position or strangle. ?For today, VXX goes down but I would not be surprised to see it lift at some point in the January cycle.?
The Trade
In the Jan 10 Weekly cycle buy the ATM puts and just OTM call spreads such that roll yield will pay for the call spreads if VXX continues to grind lower.? 35% is just too cheap to ignore at all time highs in SPX.
Disclosure: We have positions in VXX.