Today is an exciting day! Now it’s just a boring Monday with no news of any significance but today marks the re-launch of the VTS Tactical Volatility Strategy. To use the old tired cliche, when life gives you lemons… No we’re not going to ask for Tequila and salt! We’re going to make lemonade.
The termination of XIV meant the strategy needed to be put on hold until a viable replacement surfaced. Given that a few people have been having issues buying the ETFs directly I think this comes at the perfect time. It diversifies the strategies which is always a good thing, but it also may be a solution to the restrictions so if you’re one of them, please contact your broker and see if long only single leg options on the VXX are available to you.
If you aren’t caught up on stock replacement please watch the two part video series and ask any follow up questions.
Part 1: https://www.youtube.com/watch?v=efjcR84Kt4k&t=408s
The Trade: Stock replacement using options
BUY to OPEN 21 Sept 18′ VXX 45 PUT
expiring in 74 days
Current debit: ~13.95
* remember prices will change throughout the day so just do the best you can. The lower the price you can get the better.
Remember this strategy isn’t looking for leverage so it reserves the same amount of capital it would cost to buy the shares outright.
– 1 option contract = 100 shares
– 100 shares of VXX @ it’s current $33 = 3,300
– This trade requires 3,300 of reserved capital per contract
– The option is much cheaper, but we still reserve the capital
* You can scale your trade to roughly 3,300$ per contract. For example if you have 10,000$ to allocate to the strategy you can buy 3 contracts (10,000 / 3,300 = 3.03)
Always round down.
So if you have 5,000$ to allocate to the trade you can only buy 1 contract (5,000 / 3,300 = 1.51). You need to buy whole option contracts so 1.51 rounds down to 1 contract.
– Ideally we’d like to be roughly 90-100 days out in time. Since this trade only has 74 days until expiry we will likely rebalance in a couple weeks if the trade is still open. Rebalancing means we will close the current trade and open a fresh new one further out in time when more volume on the later expiries are available.
Remember the Conservative Vol and Aggressive Vol strategies held positions for over 4 months straight at the end of 2017 and made huge profit. A repeat of that would be fantastic, but stock replacement through options does require regular rebalancing to keep the Theta decay at bay.
If you’re unfamiliar with how this trade works, remember you can always use a paper trading account to test it out for a few trades before actually allocating real capital. Don’t worry about missing a few trades here and there. Trust me, the volatility markets have been here for decades and they aren’t going anywhere.
There’s no urgency here. Learn the trade, ask as many questions as you have, and when you’re ready you can start executing them and follow along.
Current VTS Total Portfolio Solution Allocations
6.7% VTS Conservative Vol Strategy – Volatility strategy for lower risk tolerance investors
6.7% VTS Aggressive Vol Strategy – Volatility strategy for higher risk tolerance investors
6.7% VTS Tactical Volatility Strategy – Volatility strategy using stock replacement through options
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