Trade Alert - (VXX) April 29, 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) – SELL-STOP LOSS
SELL the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) January 2021 $24 puts at $4.10 or best
Closing Trade – NOT FOR NEW SUBSCRIBERS
4-29-2020
expiration date: January 15, 2021
Portfolio weighting: 10%
Number of Contracts = 14 contracts
I am going to cut my last short volatility position. You DO NOT want to bet that Volatility will Fall AFTER it has had incredible 6,800 point Dow Average rally in five weeks.
We used this position as an insurance policy and made a ton of money trading against it with our short positions the gigantic February-March 37% stock market crash. It allowed us to be much more aggressive on the short side that we would have otherwise. It certainly earned its keep.
It is now time to pay for that insurance policy. Stocks are now more overbought than at any time in history, just posting its best month since 1974, back when I was a neophyte trader.
I had two assumptions in recommending this trade:
1) The Coronavirus epidemic ends in three months, or at least the number of new cases starts to trend down.
2) Bernie Sanders would not become the next president of the United States.
The Volatility Index (VIX) was then trading at a two-year high at $50. Some 90% of the time (VIX) is trading between $10-$15. That means it is the best time to sell short since 2018.
In addition, the Mad Hedge Market Timing Index was at a very low 9, a 14-month low.
I am therefore selling the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) January 2021 $24 puts at $4.10 or best. Spreads on these deep out-of-money options are wide, so don’t enter a market order on pain of death. Use limit orders only.
This was a bet that the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) would not trade above $24.00 by the January 21, 2021 options expiration day in one year. All you need is a decline any time in the next year, the sooner the better.
Here is the specific trade you need to exit this position:
Sell 14 January 2021 (VXX) $24 puts at………….………$4.10
Loss = ($6.90 - $4.10) = $2.80
(-$2.80 X 100 X 14) = -$3,920
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.
