I know what you're thinking, "Oh great, another douchecanoe typing 'words words words' who adds a crayon drawing because he thinks this is investing." No. Because sirs (and madams), this is a casino!
In this casino there are Robinhood autists YOLOing at the roulette table, or trying to win their YOLOs back at the nickel slots. Then there's theta gang, sitting at the blackjack tables like the card counters they are. They're not as fun, but they're methodical, and can play for hours at a sitting. Your loss porn is their gain. They know the House doesn't always have to win if they bet more when the odds are in their favor.
In blackjack, if the dealer shows an ace, you can buy insurance. It's almost always a bad bet, because in multideck blackjack it's really hard to count cards. But if you could count the cards, you would know that sometimes, an insurance bet is a good play.
For the hand we're all holding right now, the cards that will be dealt next can be (mostly) counted. Your portfolio insurance doesn't have to be SPY puts. You don't have to be a bear right now, but if you're at least bear curious, VXX is a decent play at the moment.
For a detailed explainer on what VXX is, click here. For those of you who don't care about messy details just understand that VXX is an ETN trading on current and future month VIX (market volatility) futures. Presuming you're buying calls/selling puts because that's all some of you do, you're buying calls on futures of an volatility index. That's a lot of crystal balls to be juggling in one ticker symbol.
Now let's look at the chart of VXX since January 2018, giving us almost three years of history:
VXX Jan 18 through Oct 20
For the two of you who have ever read the disclosure on your broker's investment pitches, you know "past performance doesn't guarantee future results". How could it? We're looking at futures here, not pasts. But...
Note that in the last three years, VXX has only been below $20 from late October 2019 to mid February 2020 - when Covid decided it was going to wreck our fully employed, stable, almost nirvana of an economy.
Since Late March, we've been working off that excess peak as stonks have only been able to go up. That last little spike, however, came in September when election uncertainty coupled with Washington gridlock/Stimulus failure/JPow saying the Feds needed to help his printer go BRRRR.
The VIX popped back to 30 after the first "Presidential" (air quotes) debate raised uncertainty over the outcome of the election/transfer of power and then the President was diagnosed with Covid. As the polls started to shift toward a sweep for the democrats, however, the removal of election uncertainty and the likelihood of even bigger stimulus after the election started to outweigh the fears of additional taxes/regulation on businesses, along with Congress and the White House continuing to play Lucy & The Football with us over stimulus before the election goosed the market. Stonks resumed their "only go up" posture, and the VXX has been creeping back down.
That's the past. What's actually going to happen here?
(NOTE: I'm well aware of WSB's NO POLITICAL BULLSHIT! rule. You should be too - look to the right if unfamiliar. The following items are about illustrating how uncertainty will lead to volatility so we can make green, not to talk about how red or blue you are.)
1) Polls always, always close before an election. It's still hard to put together the electoral map where President Trump wins, but there are late polls showing states that were clearly in Biden's column moving back to toss up. Narrowing polls, by definition, will increase election uncertainty.
2) The greater use of vote by mail increases the likelihood that we won't know who won - especially control of the Senate - on election night...or maybe a day or three after.
3) Individual Senate seats are less guaranteed to flip than the White House. In addition, there are possible runoffs. In Georgia, where a candidate must get 50% plus one vote to win, there are two seats currently in the toss-up category, and their runoffs are NINE WEEKS LONG. It's possible the next Congress will only have 98 Senators when they are sworn in, with Georgia getting around to sending Senators a week or so later.
4) Late this week or next, The White House/Nancy Pelosi/Mitch McConnell are probably going to have to say definitely/out loud that there will be no stimulus agreement before Nov 3rd.
5) Half the country is not prepared to accept the outcome of the election, regardless who wins.
6) If you think partisans are bitter and unable to reach an agreement now, wait until they're lame ducks. I don't see how all of these problems get magically solved in November or December.
7) Sometime in November, the market will quit worrying about just getting November 3rd over with and will start focusing on policy changes. A Republican Senate that refuses to pass anything for a Democratic President? A Democratic Senate that decides to get rid of the filibuster and pack the Supreme Court, Green New Deal, resume soaking the rich?
8) The Pandemic? That old thing? Newsrooms are working overtime to turn ensure we're all preparing for new lockdowns as winter approaches.
Again, taking political opinions - mine or yours - out of this, the market got way too comfortable too quickly with what is about to happen November - January, and the open questions should lead to quite a bit of additional volatility. Bringing this home to that crayon drawing from CNBC above, does this environment look like it should have a VXX trading at the same levels from last fall, when unemployment was 3.5% with no inflation in sight, and reasonably stable DC politics? I don't think so.
But here's the bonus thing. I may be wrong about any and all of the 8 catalysts above. They lend themselves to shorter term calls, but at least once per year, the market gets caught offsides, and VXX spikes. The ETN appears to be worthy of a core trading position below $20, in addition to calls at times like now when the market seems to be too comfortable with the discomfort that is coming.
If you're counting cards with me, you see a lot of 10's left in the deck and the dealer is holding an ace. I'm buying the insurance. Not so much as a hedge against the negative, but because in confusion, there is profit.
Counter-argument/caution: I've skimmed several articles noting that the VIX was pricing the election as the single biggest risk event ever. Clearly, I'm not the first to suggest this play and some will argue that it's priced in. But as this article from Forbes points out, the VIX/VXX is back to all time historical norms just a couple of weeks out. My argument is that people sold their event profits too soon, and that I expect a rising VXX into the election and possibly after.
TL;DR - The market is underpricing the uncertainty coming around and after the election, and VXX calls will help play the volatility spike as nervousness returns over the next few weeks.
Positions:
10 Nov 20 $24 calls
Likely adding new Nov or Dec calls Monday after writing this and convincing myself of my own BS.
submitted by One_Eyed_Man_King to wallstreetbets [link] [comments] In this casino there are Robinhood autists YOLOing at the roulette table, or trying to win their YOLOs back at the nickel slots. Then there's theta gang, sitting at the blackjack tables like the card counters they are. They're not as fun, but they're methodical, and can play for hours at a sitting. Your loss porn is their gain. They know the House doesn't always have to win if they bet more when the odds are in their favor.
In blackjack, if the dealer shows an ace, you can buy insurance. It's almost always a bad bet, because in multideck blackjack it's really hard to count cards. But if you could count the cards, you would know that sometimes, an insurance bet is a good play.
For the hand we're all holding right now, the cards that will be dealt next can be (mostly) counted. Your portfolio insurance doesn't have to be SPY puts. You don't have to be a bear right now, but if you're at least bear curious, VXX is a decent play at the moment.
For a detailed explainer on what VXX is, click here. For those of you who don't care about messy details just understand that VXX is an ETN trading on current and future month VIX (market volatility) futures. Presuming you're buying calls/selling puts because that's all some of you do, you're buying calls on futures of an volatility index. That's a lot of crystal balls to be juggling in one ticker symbol.
Now let's look at the chart of VXX since January 2018, giving us almost three years of history:
VXX Jan 18 through Oct 20
For the two of you who have ever read the disclosure on your broker's investment pitches, you know "past performance doesn't guarantee future results". How could it? We're looking at futures here, not pasts. But...
Note that in the last three years, VXX has only been below $20 from late October 2019 to mid February 2020 - when Covid decided it was going to wreck our fully employed, stable, almost nirvana of an economy.
Since Late March, we've been working off that excess peak as stonks have only been able to go up. That last little spike, however, came in September when election uncertainty coupled with Washington gridlock/Stimulus failure/JPow saying the Feds needed to help his printer go BRRRR.
The VIX popped back to 30 after the first "Presidential" (air quotes) debate raised uncertainty over the outcome of the election/transfer of power and then the President was diagnosed with Covid. As the polls started to shift toward a sweep for the democrats, however, the removal of election uncertainty and the likelihood of even bigger stimulus after the election started to outweigh the fears of additional taxes/regulation on businesses, along with Congress and the White House continuing to play Lucy & The Football with us over stimulus before the election goosed the market. Stonks resumed their "only go up" posture, and the VXX has been creeping back down.
That's the past. What's actually going to happen here?
(NOTE: I'm well aware of WSB's NO POLITICAL BULLSHIT! rule. You should be too - look to the right if unfamiliar. The following items are about illustrating how uncertainty will lead to volatility so we can make green, not to talk about how red or blue you are.)
1) Polls always, always close before an election. It's still hard to put together the electoral map where President Trump wins, but there are late polls showing states that were clearly in Biden's column moving back to toss up. Narrowing polls, by definition, will increase election uncertainty.
2) The greater use of vote by mail increases the likelihood that we won't know who won - especially control of the Senate - on election night...or maybe a day or three after.
3) Individual Senate seats are less guaranteed to flip than the White House. In addition, there are possible runoffs. In Georgia, where a candidate must get 50% plus one vote to win, there are two seats currently in the toss-up category, and their runoffs are NINE WEEKS LONG. It's possible the next Congress will only have 98 Senators when they are sworn in, with Georgia getting around to sending Senators a week or so later.
4) Late this week or next, The White House/Nancy Pelosi/Mitch McConnell are probably going to have to say definitely/out loud that there will be no stimulus agreement before Nov 3rd.
5) Half the country is not prepared to accept the outcome of the election, regardless who wins.
6) If you think partisans are bitter and unable to reach an agreement now, wait until they're lame ducks. I don't see how all of these problems get magically solved in November or December.
7) Sometime in November, the market will quit worrying about just getting November 3rd over with and will start focusing on policy changes. A Republican Senate that refuses to pass anything for a Democratic President? A Democratic Senate that decides to get rid of the filibuster and pack the Supreme Court, Green New Deal, resume soaking the rich?
8) The Pandemic? That old thing? Newsrooms are working overtime to turn ensure we're all preparing for new lockdowns as winter approaches.
Again, taking political opinions - mine or yours - out of this, the market got way too comfortable too quickly with what is about to happen November - January, and the open questions should lead to quite a bit of additional volatility. Bringing this home to that crayon drawing from CNBC above, does this environment look like it should have a VXX trading at the same levels from last fall, when unemployment was 3.5% with no inflation in sight, and reasonably stable DC politics? I don't think so.
But here's the bonus thing. I may be wrong about any and all of the 8 catalysts above. They lend themselves to shorter term calls, but at least once per year, the market gets caught offsides, and VXX spikes. The ETN appears to be worthy of a core trading position below $20, in addition to calls at times like now when the market seems to be too comfortable with the discomfort that is coming.
If you're counting cards with me, you see a lot of 10's left in the deck and the dealer is holding an ace. I'm buying the insurance. Not so much as a hedge against the negative, but because in confusion, there is profit.
Counter-argument/caution: I've skimmed several articles noting that the VIX was pricing the election as the single biggest risk event ever. Clearly, I'm not the first to suggest this play and some will argue that it's priced in. But as this article from Forbes points out, the VIX/VXX is back to all time historical norms just a couple of weeks out. My argument is that people sold their event profits too soon, and that I expect a rising VXX into the election and possibly after.
TL;DR - The market is underpricing the uncertainty coming around and after the election, and VXX calls will help play the volatility spike as nervousness returns over the next few weeks.
Positions:
10 Nov 20 $24 calls
Likely adding new Nov or Dec calls Monday after writing this and convincing myself of my own BS.
