Looking through my portfolio, this spread has hit its 50% profit target less than a month in. It’s really amazing to ponder. This short 50x $VXX June 50/55 call spread required $25k in margin ($5 strike/spread * 100 multiplier * 50 spreads), risked $17.4k ( = $25k – $7.6k), and made ~$4k in a little less than 1 month. Let’s just say $4k in 1 month, or $48k in one year. For margin of error, let’s cut that return in half and say $25k/year, or 100% return.
What’s wild is that I used to run my 4,000-line Python program to scan for candidates and enter in 1-4 spreads, whereas now I can pile on a single position on $VXX with no software development and maintenance. Instead of 50 spreads, I can pile on 100, 200, or 500 spreads with almost zero marginal effort or analysis.
My consideration now is whether to close these out at the 50% (can exit immediately) or 75% profit target level (another 2-4 weeks). Studies on “normal” underlyings unrelated to the VIX volatility complex have shown:
– The 50% profit target suffers less drawdowns on total portfolio and has higher probability of winning (since it’s easier to get to 50% than 75%). Nothing comes for free and there are tradeoffs.
– The 75% profit target may return a greater “absolute” amount of capital, comes at a lower probability of winning even though you win more when you do, and feeling more stress.
My task now is to do research into:
– Whether this effect occurs in VIX-linked underlyings like $VXX or $UVXY
– Whether I want to make more money and feel more stress, or slightly less money and feel less stress
– Whether I want to diversify my strategy into other options strategies (long put spreads), short underlyings directly ($UVXY, $VXX), and/or trade VIX futures directly
Trading Journal 