Awesome Short Volatility Strategy: Short VXX / UVXY with Butterfly Options

[@VolatilityTradingStrategies]

Crush the Market with this Iron Condor Options Trading Strategy: kzbin.info/www/bejne/j6jHoX2fYqqblZY&ab_channel=VTS-BrentOsachoff Claim your FREE Trial to VTS Here: www.volatilitytradingstrategies.com/subscribe

[@antoniolopes7183]

@VTS - Brent Osachoff - After subscribing to your channel, I tried to place a couple of trades using options on both VXX and UVXY. Also looked at SVXY. My experience was that getting the order filled was not easy, as liquidity on those options, especially longer term expirations, seem to be thin. Which expirations and underlyings for the Vol ETFs seem to work better for your strategies? Thanks a lot for your great insights!

[@maurohalpern]

congratulations from Brazil!!! this broken wing butterfly is the perfect strategy!! I am going to be your client

[@VolatilityTradingStrategies]

Brazil, nice! I've been to Panama, Venezuela, and Argentina, but never made it to Brazil yet but I've always wanted to go.

[@jaimequinoa4760]

Hello Brent, how do you calculate de decay factor over a given period?. Many thanks

[@chrismcguiness6539]

I agree man. 93% of options each week are on UVXY calls lol. It’s legit manipulated down every week! It’s a money printer on puts

[@VolatilityTradingStrategies]

Just remember that Long UVXY Puts have two issues as well so it's definitely not free money: 1) They are long Vega (Volatility) trades so when you're buying them you have to make sure you're not paying too much relatively speaking to where volatility currently is. You'll want to only buy long Vega options when volatility is relatively cheap in your estimation, and not on the expensive side because that will hurt the trade a lot if you get some Vega crush. With Long Puts you can easily be in a situation where you get the direction right and still lose money on the trade. The Vega component is just as, if not more important. 2) Everyone and their dog already knows Volatility ETPs decay, so that decay factor is priced into the Options which are relatively efficient. There isn't much "edge" in simply knowing they go down, that's common knowledge. You'll need additional sources of actual edge in order to make your strategy profitable. Blindly buying Puts or selling Calls has no expectation of long-term profit. You'll need an effective pricing/timing system beyond what everyone already knows.

[@lukyluukehfk5247]

What is about Put Selling to hedge the stock andl short vol strategies? Would you ever deliver the UVXY in your portfolio? If yes, when would you do it?

[@VolatilityTradingStrategies]

Put selling isn't a good hedge because it has no convexity. It doesn't increase in value as the market moves, the gain is capped at the premium collected. True hedges need to have the ability to increase in value as the market moves, like long calls on VIX or UVXY for example, they can keep ramping up and provide more protection. Now they are expensive and inefficient so I'm not saying they should be used either, but when hedging it does require convex positions. As to UVXY, I've used it in several strategies for the last 10 years, but if by "deliver it" you mean actually hold it long, then no I never do that. I use it as a short term trading vehicle. When I need a volatility ETP as a hedge, I typically use the VIXM, or 1/2 allocation in the VXX or VIXY. They move slower so it's safer and less costly when the market reverses.

[@jaxpatriot904]

I'm hoping tomorrow with the feds increasing rates this will cause huge volatility allowing uvxy to do its thing 🤑

[@richardmckinley3236]

Hi Brent: Love your insights as always. Questions: Canadians can't sell naked calls within RRSP or TFSA accounts so seems this can't be done in such accounts? If I do this in my regular margin account is there a way to avoid having hundreds of capital gains/losses transactions to enter into my taxes each spring?

[@VolatilityTradingStrategies]

Sorry, I think you may have misunderstood the video. We DO NOT sell naked calls. I showed that as an example in the video of a terrible trade. If you're in a cash account, you can only trade defined risk options, which a butterfly is. Every strategy we have at VTS is tradable within cash accounts. Now sometimes certain banks have rules that make it tough for whatever reason, so you'd have to check if you can still trade defined risk option spreads. Most people can, but you'd have to check just to confirm. Sorry I can't really speak on anything to do with taxes. I haven't been a Canadian resident in 18 years, but we also have members from over 65 countries and it's not wise for me to offer any tax advice for things I don't know for sure. I'd hate to lead anyone astray, so you're always best consulting with a dedicated tax professional in your area, and they can help you specifically related to your situation.

[@TheNicolasGosselin]

@@VolatilityTradingStrategies Canadian as well and new VTS member. Started trading vol recently (before finding you) in registered accounts. So newbie and want to improve. Same situation as Richard, RRSP & TFSA accounts are limited to level 2, which means that only long put/call positions and covered calls are allowed. We can neither do spreads nor shorts in these. Therefore, I am using two strategies to face that situation: stock replacement and ITM covered call (same strike price as the short put for the Butterfly). What is your advise for this?

[@richardmckinley3236]

​@@VolatilityTradingStrategies Thanks Brent. Sorry, I should have said 'sell a put' rather than 'sell naked call', my slip up. I was seeing the butterfly as a combination of options (which it is) and thinking the 'sell option component' won't work in my RRSP/TFSA. You answered my question regardless ... I need to check and see if they look at the combination (iron butterfly) as an acceptable trade. Will call TD to check.

[@VolatilityTradingStrategies]

@@richardmckinley3236 Seems Nicolas in the comment above has the same issue, and they won't allow complex spreads. I have no idea why, it's defined risk and much safer and more profitable than the basic options they allow you, but those regulations are never really about protecting investors. Hopefully you can do it, but if not you'll have to trade these outside your tax sheltered accounts.

[@VolatilityTradingStrategies]

@@TheNicolasGosselin Stock replacement works fine with trend following strategies, but the issue there is that trend following volatility is not ideal in this environment so you may want to hold off on that. We have a strategy called Tactical Volatility that under normal conditions would work well, as we do use in the money put options on the ETF which I'm sure would be allowed in those accounts. But right now it's not in the portfolio because of this bad volatility regime for trend following. Trends are too short, volatility spikes are too frequent, so we'll hold off for a bit and revisit when things in the market improve.

[@iwanttohehe]

UVXY is american style expiration. In your experience shorting UVXY options what are the chances of an early assignment?

[@VolatilityTradingStrategies]

I'm probably not the average experience because I am always trying to take the safe trades that don't get too far in the money (butterflies) and I more often than not buy long dated puts when shorting volatility, but in my experience it's never happened to me. Like you said though, there is always that possibility so anytime you have options that are in the money you'll want to check your trades daily. If you do get unlucky and assigned early, at least you'll see it and can react to it accordingly (usually by just closing the rest of the trade)

[@kamran6336]

Would call credit spreads suffice, too?

[@VolatilityTradingStrategies]

Nothing wrong with those, but it's an entirely different strategy because the risk reward ratio of an OTM Put Butterfly is radically different from a Call credit spread. But I do have a totally separate strategy (Volatility Step) that does use vertical spreads.

[@MetaMikeG]

If I just wanted to purchase regular stocks and not options, would I still lose a lot of money if I sold and I wasn’t in a profit?? Considering I attempt a short term trade?

[@VolatilityTradingStrategies]

The Volatility Trend strategy itself is only meant for options, because of the unique nature of how we can set these up. We can make them delta neutral in the middle range with positive Theta, and no upside risk. So long-term, it's a short vol strategy with no spike risk and we just let time and theta be our profit. When you say purchase regular stocks, I assume you mean shorting the UVXY ETF? That trade has massive risk to the upside, which violates the purpose of the strategy. Now of course you can design other ETF strategies that could be good short volatility. I'm just saying, simply replacing the options with ETFs won't work in this case. You'd have to redesign the entire strategy. You'll be much more interested in our strategy called Volatility Step which will be launching in the form of a course soon so maybe circle back in a few months for that. It can use either options or the ETFs and you can just sub in the one you like better.

[@SupportTheLittleGuy]

I consider dipping in with 3k and dipping out and siphoning hundreds here and there

[@VolatilityTradingStrategies]

Yes, as long as you're viewing things in percentages. Even the best strategies won't likely return more than about 20-30% a year in the long-run, so I always think people should target roughly 1% a month, maybe 2% if you have a really good strategy with a long-term track record of success. So on 3k, if you targeted 30 bucks a month, maybe 60 if you had a very solid strategy, that would be realistic. Any more than that, and it's just coming from leveraging up the risk, which works both ways, and eventually will backfire. When people try to pull out hundreds on an amount like 3k, it might work for a while but eventually that massive risk your taking on will come back. I'd recommend taking a more realistic long term approach, and just try to find strategies that get you your 1-2% a month on average in the long run. If you make 1-2% a month in the long-run, you'll easily be a multimillionaire over time. You don't need massive unrealistic returns to make millions. Open a compound interest calculator and see what making 1% a month and adding 500$ to an account compounds to after 30 years.

[@SupportTheLittleGuy]

@@VolatilityTradingStrategies Hello and thank you for taking the time to respond in such a detailed manner, I guess I definitely had some wild expectations with UVXY. I was hoping to do some swing trading and dip in and out since I noticed it fluctuates quite often from $9 to $11. Maybe I would get lucky once or twice, but I can see this wiping me out if it went the wrong way... however, something like 30 or 60 dollars a month seems extremely low to me but I suppose that would be a safe long-time strategy. I guess I've been looking for something more profitable in the short term. Maybe I would have to look at something that isn't leveraged.

[@VolatilityTradingStrategies]

@@SupportTheLittleGuy I realize that 30-60$ doesn't sound like much profit a month, but you have to remember that you don't get to choose you profit. It's based on your rate of return that you can REALISTICALLY get, and the amount of capital you have. So if you want to try to pull out hundreds of dollars a month from a 3,000$ account go for it. But in my humble opinion, the only thing that will happen is you will lose your 3,000$. You can't escape the risk reward ratio, and when you try to artificially boost it by taking on excessive risk, that only leads one place. A blown up trading account. Now you could argue that, oh well, it's only 3,000$ and if that's your attitude then fine, who am I to say otherwise. But in my opinion, it's best for people to learn proper investing with realistic expectations regardless of their capital. That way, when you build the right skills, you can start saving more money every month and add capital. But what good is it to take massive risk now, only to have to change your plan when you start making more money later on? Why not just learn the right way from the start and be consistent for 30+ years? That's my 0.02$ anyway :)

[@dannyzusa]

Didi VXX restart creating shares? Is it re-liable? Where the f is the class action suit.

[@VolatilityTradingStrategies]

Well I don't think there's going to be any lawsuits, they didn't actually do anything that isn't covered in the prospectus. Remember, those sneaky bankers have teams of lawyers to make sure the language in the "small print" covers their ass in the event of a crisis. As to the shares, I don't think creation is fully functioning yet, but the gap between NAV and IV has closed a lot and is only 0.6 away now. So in essence as of now, at least with respect to the price tracking, it should be more or less tradable. But I would still hold off for a bit, trade VIXY or UVXY if you have to, but I'd wait for the share creation to be announced as fixed and the volume of VXX to ramp back up.

[@igor-fk3vv]

Isn't the expected decay priced in the option chain ?

[@VolatilityTradingStrategies]

The Options market is efficient and sophisticated, so yes, anything done blindly should always be considered priced in. As an example, if you opened any option trade on UVXY every month and just did it on a calendar schedule, the expected profit would be close to 0%. So traders will always need to apply an actual edge to whatever they are doing in order to make a profit. Volatility ETPs decaying is not an edge, everyone knows that already. So the timing, and measuring the volatility metrics to determine when there is a higher expectation of additional decay compared to historical norms is what people need to focus on. The video and strategy is about trade structure, and the Broken Wing Butterfly is superior to anything else in my opinion. But that doesn't mean we can trade them blindly, we can't. We still have to apply our trading edges, which is what the actual timing of entries and exits is and what all my work is based on.

[@zach1054]

IDK what you did different, but the high pitching pinging noise is gone! Also, I'm loving the new animations and effects. I know they can take a long time to edit together, but they go a long way in making the video feel engaging.

[@VolatilityTradingStrategies]

Thanks! I actually didn't do anything since these 4 recent videos were all shot within the same 2 day period well over a month ago. I just took some time to try to hire an editor, and when that fell through I did it myself. So let me know if any videos in the future have that and I'll try to figure it out. I use noise cancelling headphones to edit so I can catch most mistakes, but I'm certainly not an audiophile so any help is appreciated.

[@parasjoshi9352]

I bought uvxy at 21 dollar should i sell it or wait for it to go up????

[@VolatilityTradingStrategies]

Unfortunately I can't give out any personalized investment advice, I can only educate on the products and then people have to make their own decisions. I NEVER buy UVXY, for a few reasons: 1) It moves too fast, and it's too punishing when wrong. It's a 1.5x leveraged long volatility ETF, and it mostly goes down. So when you're wrong on the timing it can cost a lot of money. When I go long volatility (which isn't very often) I use the VIXM since it's an M4:M7 product that moves much slower. Bad trades are less costly. 2) I find it much better to structure trades using options, so even if I did have a long bias I would still want to use an Option spread to remove some of the risk. You're posting this in a short volatility strategy video, so perhaps you can start learning some strategies that are more effective. Buying long UVXY is just a gamble, and we don't do that at VTS. I invite you to explore the wonderful world of "defined risk" short volatility trading. You'll have more success going forward.

[@Nathan-is7lp]

Brent, I've watched this vid 4x and what I can articulate is that this is nothing short of brilliance. If I may offer feedback, I'd say simply this: simplify. I've always held a cash account, never margin, to circumvent PDT. Always long (net debit) p/c. It's abundantly clear, as of this very writing, that we're about to experience pain, and no shortage. In Macro context, what's the best way to position in the next 3-6m? Already shorting every pop. TY Kindly in advance.

[@VolatilityTradingStrategies]

Appreciate the kind words! So there's a few things there, let me try to address them: 1) With the advice of simplify, do you mean the Broken Wing Butterflies or the overall portfolio? My generalized answer would be, I make my portfolio as simple as it can be and still be the most effective. So everything I do within our 4 main VTS strategies and 5-6 VTS Options strategies is adding value. But I don't add complication just for complication sake if that's what you mean. I agree that things should be kept simple whenever possible. 2) Pattern day trading only applies if you are actually day trading, which I don't think is a viable strategy for many (if any) people out there. I realize it's all the rage on Tik Tok and Twitter, but those people are frauds and wouldn't dare show a track record. I don't ever day trade, I never have positions opened and closed in the same day so the PDT rules don't apply to anything I do. 3) If you limit yourself to only long, you're missing out on the ability to custom design your strategy to fit the current market. To be successful, I believe traders need to have a full took box at their disposal so they can increase the odds of success given the current situation. It would be like trying to build a house with only half the tools. I'm sure you could throw something up that looks like a house, but it wouldn't be as well made as someone who used the exact right tool for the job. 4) I also think the market is going to struggle going forward, and I have a hard time seeing how we don't experience significant pain as the Fed keeps raising rates, which I think they have to. I suspect they will raise rates until the market breaks, and then reverse course and start cutting again. 5) Best way to position, for me personally, never changes. I have a full suite of strategies and each one of them on it's own has an answer for down markets. So I just keep following my quant strategies in all market environments, and just have faith that what I've built will be able to handle what's coming. I don't try to front run predictions on the economy, I don't find that helpful long term.

[@TheGreatCompound_]

Hey Brent, great video. Could you make a video on the wheel of fun strategy. It will be very helpful. Thanks!

[@VolatilityTradingStrategies]

That strategy will be included for sure in VTS Options when it relaunches, and I'm actually considering releasing the Wheel strategy videos for free on the KZbin channel so yes, those might be coming. I'm not 100% sure, but stay tuned, I may do that :)

[@ericwhitfield8636]

What if TOS tells me “it can’t be borrowed”?

[@VolatilityTradingStrategies]

Likely that means that you're either trying to short the shares and they aren't available, or you're trying to buy the shares long and you're not a US resident. But if you're just trading the UVXY butterfly option from the video, then I don't know why it would be giving you that message. Everyone should be able to trade these. Now of course you're going to need the right level of Options trading approval, but even if you didn't have it, the message you get wouldn't be saying it can't be borrowed. It would likely just tell you that you don't have the Options approval. So the first thing to check is you do have the highest Options approval at TOS so you can trade complex spreads. From there it should be good to go. If it still isn't, you'll have to contact them because it should be available after that. We aren't "borrowing" any shares to trade the Options, that message doesn't make sense in the context of Options trading.

[@BHATTACHARYYAT]

good video.

[@Nathan-is7lp]

Sell a short call? So...buy a put? Hi Brent. Fan and your material has obvious value. So, to make it short and plain, I trade a cash account. I only buy premium. What are the most profitable strategies, of course, given in the current context. And yep--all about context.

[@VolatilityTradingStrategies]

As long as you understand, trade structure itself is only one aspect out of many that makes a person successful. But the best defined risk option spreads in my opinion are Butterflies, Iron Condors, Verticals. You can do a lot with just those, but remember, any time you limit yourself you are making it harder to succeed. Trading is already hard enough, so try not to hold any hard rules like I don't do X, or I only trade Y. Be open to using all the tools at your disposal, and apply the right tool for the job in the moment.

[@jzhng250]

@@VolatilityTradingStrategies same question, why not buy UVXY puts?

[@李佳榛-e5d]

👍🏻👍🏻👍🏻

[@VolatilityTradingStrategies]

Thanks to my #1 fan!

[@bingwong3011]

brent, why bother covering the the short PUT, keep it naked - if it gets challenged just roll.. eventually you will be right coz volatility will always makes a comeback; maybe not on UVXY, but on regular VIX options

[@VolatilityTradingStrategies]

1) Buying power of a butterfly is vastly less than naked positions, which means I can open more contracts, and layer way more trades with higher frequency compared to naked positions. 2) Obviously the risk of naked positions will always be significantly higher than defined risk. And since I don't know when the next crazy volatility event will be, why not just be safe? 3) Defined risk spreads can be traded in tax sheltered accounts and can be traded with lower level options approval. 4) The "just roll" is something that only applies to theoretical trading. But in live trading situations, of course buying power is based on current net liq, and when your trades are down money, if you have other trades in your account then you can't "just roll" anytime you want because your buying power will be less than when you opened the first trade. If it goes substantially against you, it could easily impact other trades in your account. When you trade defined risk, you know from the start what you're risking and allocation sizing with a full diversified portfolio is done when the trade is opened. 5) Also, just because you roll something doesn't mean it's not a loss. When you roll a trade out, you are officially closing it and reopening it in the same transaction. It's a loss just like anything else. 6) OTM Broken Wing Butterflies long term will make far more than a naked option strategy for all the reasons listed above. It's not only safer, but higher profit. Win / win :)

[@bingwong3011]

@@VolatilityTradingStrategies All good points. My idea of "just roll" was to roll for breakeven or credit and lowering the breakeven so that one wouldn't need as large a vol spike to close out position. But vol trading with VIX is like playing with voodoo - I just pulled up a VIX Mar 23 Put contract. If i had sold this contract when VIX was "low" ie. 19-20 back in early Dec.'22 there have been a number of vol spikes since then that took VIX up to 24-26 on number of occassions yet the PUT did not get any cheaper, AND despite the passage of time! Is that the effect of the VIX term structure contango "roll" as the VIX futures gravitates to spot as expiration approaches it actually makes the PUT more expensive coz it makes the PUT go deeper ITM? If so it seems like selling PUTs is a headwind if one plays in the front-month. Your thoughts?

[@DavidisDawei]

It looks like Volatility is still broken

[@gaving9463]

bad advise....you need exposure to volatility and the unlimited risk part...thats why YOU GET PAID! Real Traders know

[@VolatilityTradingStrategies]

I agree with you about having a strategy that benefits a lot more when catching good trends, which we have in our portfolio (Tactical Volatility Strategy) but the part of about "real traders know" I would expand on that and say, REAL TRADERS KNOW the benefit of having several different Volatility strategies with different directional exposure and different risk levels. Again, which we have at VTS. You are just watching a video for 1 of our strategies. The TPS is many strategies together in a diversified portfolio :)