Options Trade #31 - UVXY Put Spread - "Vol Step Strategy"

VTS Community,

After today's huge jobs report beat, that really puts the spotlight on the Fed for their next meeting.  The narrative they've been pushing is, they will remain data dependent and ready to raise rates if the economy continues to be strong.  Well, 312,000 jobs added and annual wages jumping 3.2% seems to be just that.  So keep raising right?  But then there's also the narrative out there that any more rate hikes will crush the economy and push us into recession.

So which is it?  The economy is strong, or fragile?  This is the problem with having so many years of easy money policies.  Now people are addicted and behaving irrationally. 

Many fund managers proved last year they can't make money unless the market keeps going straight up, so it's no surprise that many of them are begging the Fed to start lowering rates again.  But it's my hope that the Fed stays the course and does what is right for the economy and for the future.  The cycle has to be broken at some point, so it mine as well be gradually during a strong economy rather than suddenly later on during a weak one.

New "Vol Step Strategy" trade today

Click here to see the strategy video explanation

The trade:

Long Vertical Put Spread on UVXY for February expiration

BUY to OPEN 2 x 15 Feb 19' UVXY 75 PUT SELL to OPEN 2 x 15 Feb 19' UVXY 70 PUT Debit:  ~ 2.50

* prices change throughout the day so do the best you can The lower the price the better

Margin Requirement:

* The model portfolio has been reset for 2019 at 25,000

Long vertical spreads are defined risk trades and require very little margin.  It's just the cost of the contract multiplied by the options factor of 100, and then multiplied by the number of contracts.

2.50  x  100  =  250.00 margin per contract 2 contracts  x  250.00  =  500.00 total margin required

500.00  /  25,000 model portfolio value  =  2.00%

* You can scale your trade to roughly 2% of available capital within your VTS Discretionary allocated funds.

Risk management / future action:

Often times if I capture most of the profit early I close them out early to reduce gamma risk, but since these are very small allocation trades I need to factor trade fees in the equation as well.  That does mean sometimes I just let them expire.  If you want to keep things really simple you can also consider them "set and forget" trades where you just let them expire each time.

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