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.

Monday, July 1, 2013

Remembering 11 years ago this week

It was 11 years ago this week that we had a July 4th on a Thursday.  I only remember few trading days and this was one one of them in my 15+ years in trading.   We were in a slow and steady decline after the tech bubble busted and what I remember was being in Las Vegas on vacation and the DOW popping +400 points on the Friday after the July 4th!  I thought I missed the bounce, but it was only a dead cat bounce.

I cant say that history will repeat itself, but it is just one of those days you just don't forget.  It turned out to be the best time to short the market.  The DOW continued its decline for the rest of the year, dropping another 2000 points, 20 days later, before giving a longer term bounce.  The bounce went from 7500 back to the July 5th lows.  So that July 5th date served as resistance line for the rest of the year.