Wednesday, July 3, 2013

Cant Short UVXY, but Can Short The Call Options!

A holiday shorten trading session today July 3rd.  The market opened lower and I wanted to buy the dip.  We have been mostly gaping up lately, so I wanted to pounce on this drop.  I was hoping to buy 1000 shares of SVXY.  Volatility has been on the decline and tends to revert to its mean.  I missed my limit price of $78 that I saw in before hours trading.  Instead of chasing, I decided to go try shorting UVXY.  The double inverse of the VIX futures.  Unfortunately, E*Trade cant borrow any shares to trade, but they do sell options on UVXY.  So I saw that the weekly $72 calls was selling at $2.05 with 2 days to go.  That means UVXY would have to move 7.8% in 2 days before I start to lose money or go above $74.  With the market closed for July 4th, we really only have 1 day left, plus the half day today.  That is a risk I was willing to take.

I nailed it.  Some one did pay me for 10 contracts at $2.05 and I received $2050 for calls.  The market recovered and volatility declined the rest of the morning.  After 2 hours the calls were worth .85 and I covered at .90.  The calls will probably expire worthless, but I don't want to be greedy and I locked in the gains.

Here is a chart of the option trading.  Very low volume, but you can still close out trades if you are willing to time your trades well.

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