I was planning to ride my VXX naked call all of the way to expiration and then sell covered puts on it for as long as I could ride it. Once I saw $SPX hit resistance around its 200 day moving average I started wondering if my downside risk was greater than my upside potential and decided to exit and try it another day. While VXX was trading at $40.13 I bought to close one December $33 naked call for $7.30 and paid $$730.72 with commissions. This gave me a realized loss of $31.46 on this option. I almost made a few cents on it, but my original order didn’t hit and I had to chase it up the ladder some. I could’ve bought this call back with a market order for $6.95 just a few minutes before I changed the order.
$SPX was around 1,258 at the time I made the trade and now it’s down to 1,252 while I write this with VXX up to $40.80. I ran a few alternate trades through my head before running with this one. All of them pushed me into January with VXX exposure and I didn’t really want that any more. I thought selling a January $38 covered put for a little more than $3.00, but figured VXX could pop another $3.00 higher and waste more money for me in a single day. That made me consider a January $44 covered put for about $7.00. It would’ve put my cost per share around $47.00 and might not have been a bad trade since I would’ve set myself up for another $300 profit over the next seven weeks. I really debated that, but finally decided it was better to just get out, move on and concentrate on my core positions of index ETFs. I’ll probably come back to VXX again next year and might start my trade with a calendar spread to try to work off the faster time value erosion in the front couple of months versus four to six months out.
I also considered new covered calls on JPM. I have December $38 covered calls on my 200 shares right now. I’ve left them in place even though they are only worth $0.10 so that I’m forced to sell if JPM rips higher again. It’s already so far off its recent lows that I wondered if I should lower this strike and try to get out with the guarantee of more premiums in my pocket. I got as far as entering the limit order, but never hit “transmit” before I deleted it. I’ll probably regret not taking in more premiums since JPM looks like it might have gained as much as it’s going to for now. I opted to risk it though and see if how it does tomorrow. If it starts to falter, I’ll go ahead and sell new covered calls at lower strikes or might just close the position if it looks too risky.