Our SVXY demonstration hit a real snag this week, as the volatility index (VIX) soared to over 20 and SVXY got hammered, falling from the mid-$80’s level when we started the portfolio to about $65 while we were betting that it would move higher.
I hope you find this ongoing demonstration of a simple options strategy designed to earn 3% a week to be a simple way to learn a whole lot about trading options.
Handling an Adverse Price Change
There wasn’t much we could do today. The short 80.5 SVXY put that we had sold was expiring about $15 in the money, a situation that makes it quite difficult to roll it over to next week as a calendar and still enjoy a credit on the trade. Instead, we chose to go out two weeks and sell an Oct4-14 80.5. This is the trade we executed:
Buy to Close 1 SVXY Oct2-14 80.5 put (SVXY141010P80.5)
Sell to Open 1 SVXY Oct4-14 80.5 put (SVXY141024P80.5) for a credit of $.20 (selling a calendar)
Hot tip of the week. With SVXY trading below $66 and VIX over 20, buying any call on SVXY is probably an excellent speculative purchase (go out a couple of months to give the stock some time to recover, as it surely will). As usual, only invest money in options that you can truly afford to lose. I am buying Dec-14 66 calls, paying $8.50 ($850) per contract with an idea to sell shorter-term calls against them at a later time once the stock has recovered some.