I have mixed thoughts about this market. On one hand I think the bull market has more time left in it just solely based on the time we’ve run from the bottom to present. On the other hand the ground we’ve covered has me wondering if a solid 10% correction still isn’t in order. We’re still down 2+% from the February highs, so that would only be less than 8% lower from here. Then again, a few months of sideways price action can do the same good. We’re two months into that now. What it comes down to for me is that any sell-off probably won’t last too long and might not even be much lower than it is now. Since we’re not just driving off a cliff quite yet I decided to squeeze a little more cash out of my VXX position.
While VXX was trading at $27.64 this morning I sold two VXX June $35 covered calls for $1.30 each and received $259.29 after commissions. This is both a bullish play and an uncommitted sideways or slightly down play. I gave myself a good bit of upside protection from a spike in the VIX. In March when the VIX spiked, VXX shot up above $38, but only intraday for a single day. The chances of a bigger correction are debatable for sure, but at the same time VXX is trading at a lower starting point than in March. I think I could’ve played this position with a much lower strike, maybe even down to $30, but June is when my long puts expire and I plan to exit the position around then most likely. I didn’t want a bigger VXX spike to come along and catch me selling my 200 shares below $35 while taking a smaller profit on my long puts I’ll close then. The way I worked this, any movement below $35 is moot for me. All upside in the ETF is matched by downside in the long puts and vice versa. Above $35 and I stop getting the upside in the shares due to the covered calls.
I changed my plans to exit my VXX position to “most likely” since I could change my mind if VXX has fallen a good bit more by then and I start to think we are more likely to have a correction. I might just sell my long puts for a profit and then sell in the money (ITM) covered calls again in June. The risk with that trade would be that VXX continues to lose money quicker than the calls lose time value and intrinsic value. We’ll see. I have two months to go before I make that decision.
In other news I thought oil was going to roll over this morning, but now I see it’s up. If this flattening holds into tomorrow I’ll probably go ahead and sell one UCO naked put. It’ll be a one third position with me ready to sell two more puts on further declines. If I wasn’t already in BA I’d sell another put on it too. One is enough for now though. I’m due to get back into VNQ again and continue to debate INTC. I’m glad I only took a small position on my risky trade into DSX. It fell below support yesterday and has fallen deeper today. Eventually it’ll be a buy again and I’ll double up on it at some point.