Trade Alert - (VXX) April 20, 2020 - SELL-STOP LOSS
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (VXX) – STOP LOSS
SELL the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) January 2021 $16 puts at $1.20 or best
Closing Trade
4-20-2020
expiration date: January 15, 2021
Portfolio weighting: 10%
Number of Contracts = 40 contracts
This trade has been a real disappointment. I hate it when my underlying assumptions about the direction of a market prove correct, but the instrument I chase to profit from this fails to perform. This generally happens about once every two years.
The Volatility Index has cratered from $80 to $38, as I expected, below the level where we first entered this trade two months ago. However, the value of our $16 put options dropped by half. At the worst, they should have returned to our cost with nine months to expiration.
This is occurring because traders are assuming that we won’t return to the $16 strike this year and are therefore selling short massive amounts of contracts.
I made two assumptions in recommending this trade:
1) The Coronavirus epidemic peaks in three months, in May, or at least the number of new cases starts to trend down.
2) Bernie Sanders is not the next president of the United States.
There are much better uses of our capital than hanging on to a losing trade.
I am therefore selling the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) January 2021 $16 puts at $1.22 or best. Use limit orders only.
This was a bet that the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) will not trade above $16.00 by the March 21, 2021 option expiration day in one year. All you needed is a decline any time in the next year, the sooner the better. It didn’t happen.
Here is the specific trade you need to execute this position:
Sell 40 March 2021 (VXX) $16 puts at………….………$1.22
Net Proceeds:………………………….………..………….….....$2.50
Loss: ($2.50 - $1.22) X 40 contracts X 100 contracts per option
= $5,120
To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on How to Execute Vertical Call and Put Debit Spreads by clicking here.
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Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this.
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The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you.
The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don't execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile close to expiration.
If you don't get done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
