TRADE IDEA: VIX MARCH 21ST 15/18 LONG PUT VERTICAL
Metrics:
Probability of Profit: 85%
Max Profit: 65/contract at the mid*
Max Loss: 235/contract
Break Even: 15.65
* -- I usually like to get these filled for 2.25 or less.
Notes: A slight variation on a term structure trade, which ordinarily uses the corresponding /VX futures price for guidance as to where to set up your spread. Here, instead of using the March /VX future price (currently at 14.57), I'm looking at where VXMT** is currently (at 15.30). I then look for an expiry in which (a) I can set up a spread with a break even at or above where VXMT is; and (b) that costs <2.25 to put on if a long put vertical or for which I receive a credit of >.65 if a short call vertical.***
Naturally, 104 days until expiration is an awfully long time to wait for your candy. Generally, however, I layer these types of setups on over time and take them off at 50% max profit, which generally occurs with about one-half the original time remaining for the setup (in this case, about 50-odd days).
** -- VXMT measures expected volatility in the S&P 500 over a 6-month time horizon.
*** -- The max profit/max loss metrics are the same, regardless of which spread you use. For example, the 15/18 short call vertical brings in .65 at the mid, has a max profit potential of 65/contract, a max loss metric of $235, and the very same break even of 15.65 as the long put vertical.
Probability of Profit: 85%
Max Profit: 65/contract at the mid*
Max Loss: 235/contract
Break Even: 15.65
* -- I usually like to get these filled for 2.25 or less.
Notes: A slight variation on a term structure trade, which ordinarily uses the corresponding /VX futures price for guidance as to where to set up your spread. Here, instead of using the March /VX future price (currently at 14.57), I'm looking at where VXMT** is currently (at 15.30). I then look for an expiry in which (a) I can set up a spread with a break even at or above where VXMT is; and (b) that costs <2.25 to put on if a long put vertical or for which I receive a credit of >.65 if a short call vertical.***
Naturally, 104 days until expiration is an awfully long time to wait for your candy. Generally, however, I layer these types of setups on over time and take them off at 50% max profit, which generally occurs with about one-half the original time remaining for the setup (in this case, about 50-odd days).
** -- VXMT measures expected volatility in the S&P 500 over a 6-month time horizon.
*** -- The max profit/max loss metrics are the same, regardless of which spread you use. For example, the 15/18 short call vertical brings in .65 at the mid, has a max profit potential of 65/contract, a max loss metric of $235, and the very same break even of 15.65 as the long put vertical.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.