VXX / UVXY

I wanted to show you a few charts for the Short Term VIX Futures, VXX and the 2x leveraged UVXY; a few of you with different positions inquired about them today.

 This is the 1 min intraday UVXY, I have a long equity position in the trading tracking portfolio in UVXY that I chose over a long call option in VXX which would have more leverage.

As you can see we not only have a longer term large positive divegrence (as seen earlier) in VXX and UVXY, but also a positive divegrence Friday afternoon which has run in to this morning and sent price nearly vertical in to what I'd call a parabolic-type price move. You can also see the slight negative divegrence which makes sense with what we are seeing intraday in the market averages considering the two trade opposite of each other.

With a move like this in UVXY of 14 points or more since Friday, I'd be hard pressed not to take near term expiring calls off the table, there's good momentum to sell in to and it should be a fairly nice profit, if the expiration is close at hand, even March monthlies. The way I see it, with a parabolic price move, they are almost always going to fail or see a significant pullback so why not take the gains and look for the next entry and do the trade all over again and double your profits? Options aren't like an equity long, they lose value the longer you hold them due to time decay of the premium so just expecting higher prices in the future (before expiration) doesn't always mean you'll end up with a better gain so I often will take these quickly and just look for a new area to open a new position.

I purposefully chose a long (2x leveraged) equity position in UVXY because of the large positive divegrence, I wanted to be able to take advantage of that (the position is up about +10% right now) without having to worry about trading in and out of an options position. Generally the longer the trade or more profit potential, the less leverage I want to use, one reason is just so I don't burn myself out trying to trade around an otherwise trending position.

 This VXX (same as UVXY except no leverage) 15 min chart shows a long term positive divergence as the market was rallying, usually you wouldn't expect to see that but it seems someone has been building a lot of protection against a downside move as they too didn't expect the Feb. rally to last. Because of this, I feel comfortable that VXX/UVXY are going to trend for a longer period, even though they'll have pullbacks and corrections along the way, I don't need to worry about time decay like I do with options and I can let this trade work and trend without too much hassle.

This 30 min chart is another reason why. If I see a great set up for an options trade I may take that, but in this case where it looks like there's a significant base with a lot of accumulation, I think the position has a lot of upside and I'd rather just let the position trend.

So as you can see, I';d treat two different positions very differently, the giveaway for near term expiration call options for me today is price, it's very vertical and that usually gets corrected so I'd likely have taken some or all of the call position off the table, wash, rinse and repeat for another gain.