Trade Alert - (VXX) August 27, 2018 BUY
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) - BUY
BUY the IPath S&P 500 VIX Short Term Futures ETN (VXX) January 18 2019 $40 calls at $2.87
Opening Trade
8-27-2018
expiration date: January 18, 2019
Portfolio weighting: 5%
Number of Contracts = 17 contracts
This is a bet that something bad happens sometime in the next five months and the IPath S&P 500 VIX Short Term Futures ETN (VXX) takes off like a scalded chimp.
It is also a bet that this will happen soon, before time decay eats up the value of our position.
This is a high-risk unhedged trade so I am going in with only a 5% position.
The attractiveness of such a position is apparent in the math.
The (VXX) only needs to rise $5 to the August high of $34 for the value of this position to rise 33%, and $12 to the July high of $40 for it to increase by 71%, as long as this happens in the next month or so.
If the (VXX) rockets to the April high of $54 this position soars to 382%. Not a bad risk/reward, is it? You will think you died and went to heaven.
Going deep out-of-the-money also minimizes the cash up front we need to pay for this position.
You would think that adding this trade after the Volatility Index (VIX) has plunged to the $10 handle would be a fabulous idea. But so far, everyone who has done it has been early and wrong.
This can also be a great hedge for any long positions we may want to add in the coming weeks, such as in value stocks, “trade peace,” or technology plays.
Taking an aggressive “RISK OFF” position with the Mad Hedge Market Timing Index well into “SELL” territory at 69 is also not a bad idea.
Don’t pay more than $3.25 for this position or this risk/reward will tip against you.
If you can’t do options, then buy the (VXX) outright for a short-term trade. A 5%, or $5,000 weighting works out to $1,724 shares of the (VXX) ETF.
Today, fire insurance is definitely on sale.
Here are the specific trades you need to execute this position:
Buy 17 January 18 2019 (VXX) $40.00 calls at……………..…$2.87
Net Cost:…………($2.87 X 100 shares per option X 17) = $4,879
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.