The Option Pit Method VXX made Easy What

The Option Pit Method VXX made Easy: What is the VXX? Option Pit

What we will cover • • • What is volatility? The Jan 16, 2018 riddle for VXX What is VXX? What moves VXX? How to trade VXX profitably

What Is Volatility

What is Volatility? • Volatility is simply the measure of an underlying’s movement or lack of movement – For stocks, ETF’s, indexes and futures we can measure close to close changes easily over a period of time • That is the Historical or Realized Volatility

Where does implied volatility come from? Option Demand IV

SPX IV This is what the underlying will do!

Historical Volatility (realized) THIS IS WHAT THE UNDERLYING DID!

Trail of the VXX • The first thing to remember about the VXX and it’s options is that they are: options – on an ETN • From VIX futures – on the VIX index » from option volatility » on a cash index……. . . Aaaaahhhhhhh » That try to predict forward volatility

Trail of the VIX S&P 500 Index S&P 500 options S&P 500 Index Volatility VXX Options Trade! VIX Index VXX VIX Options VIX Futures

VIX and IV

VIX measures SPX 30 day implied volatility • Why 30 days? Well, that was all that was available when VIX was invented. • The calendar is very important to trading VIX • Most importantly: VIX DOES NOT MEASURE IV of options expiring this week or next week in the SPX • VIX uses the IV of the SPX options with 23 to 37 days to expiration.

How VIX futures move The Option Pit Method “VIX futures price on the accuracy” of VIX cash Gravity Rules!

SPX and VXX Jan 2018 SPX VXX Rising IVs in both products into a historic rally

Jan 16, 2018 • Learning to read the VIX futures – VIX cash closed 11. 66 VIX 11. 66 close

January 16 th Breakdown • Day before Jan VIX expiration • VIX cash got ‘too close” to the longer term futures for too long • Rising SPX was not in sync with VIX since IV kept increasing • VIX was in contango but very light These are all danger signs for HIGHER REALIZED VOL

SPX

What the heck is the VXX?

VXX Facts • VXX buys VIX futures and holds them as an asset in the ETN – Barclays can change the rules if it wants (see SVXY and UVXY) but so far not – VXX does NOT BUY VIX cash • So we need to learn to price VIX futures – 200+ page prospectus http: //www. ipathetn. com/US/16/en/details. app? instrument. Id=259118 – VXX goes out of business slowly, but moves up fast

VXX buys futures VXX buys and sells the front two month ordinary futures so on expiration each month the net position is 100% current future. http: //www. ipathetn. com/US/16/en/details. app? instrument. Id=259118

VXX Made Easy • The Jan 2016 market was a great signal • USING THE OPTION PIT METHOD you will learn – Estimating Fair Value for VIX futures – How the path of the VIX predicts VXX moves – What are the best times to trade VXX – What are the best long and short trades – A cousins lesson UVXY and SVXY

The Problem Trading VXX Understanding the volatility that drives VXX is just one part of a puzzle. Trading VXX options successfully depends mostly on the: VIX cash and futures IV in VXX Contango and Backwardation What really is “edge” Any of those help to optimize a VXX trade for a given day of the week. And that is what you will learn!

Option Pit’s Easy Series: VXX There is A LOT of opportunity to make money trading VXX and other VIX ETN’s This course is a MUST for any trader that wants to trade volatility In this POWERFUL course traders will – Light the path of the VIX to predict VXX moves – Execute VXX trades at the absolute best times? – Master when to go long and short this ETN – Trade the VXX cousins: UVXY and SVXY Sign up before May 18 th and receive 1 month of the Volatility News Letter Sign Up by TOMORROW and receive the VIX made easy series for FREE https: //optionpitmembers. com/easyvxx//