Remember rising markets?

Almost refreshing after so much turbulence… a steady move up.  Just like the good old days…of last month:

Resembles the days of yore... will it hold?  Source: thinkorswim by TDAmeritrade

Resembles the days of yore… will it hold? Source: thinkorswim by TDAmeritrade

Volatility is duly contracting.  My trade idea yesterday would’ve been a good one (about 50% profit so far), but alas…I’m too chicken.

What to do now?  Pile back in?  The Death Cross says await 1900 on the S&P before getting back in.  The 50 / 100 MA Cross never left the market.  So what’s your plan?

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The latest “I’m too chicken to put on this trade” trade idea

Speaking of VIX, look at the term structure of the futures, compared with the past couple months:

Backwardation??? Source: thinkorswim by TDAmeritrade.

Backwardation??? Source: thinkorswim by TDAmeritrade.

It’s well known that, in times of great stress, the VIX goes from contango to backwardation.  Once everything cools off (and I do believe things will cool off), the contango will return.

The trade: VIX calendar spread

  • Short Nov ’14 VIX future
  • Long Dec ’14 VIX future
  • Spread costs about 1.25 credit (that’s $1250 per spread) right now – when returning to backwardation, exiting the trade will be a credit as well.

Why I’m too chicken: if the fear has way further to run, there’s no end to the pain that can be suffered with this trade.  I stay plenty awake at night worrying about my other positions…

If anyone else puts this trade on, let me know how it goes!