Yo Pit Crazies,

Trading is about patterns and observation.

The best trading techniques are ones that are learned the hard way – or by working with someone, like me, who has learned them the hard way. (That’s the easy way.)

Otherwise, it’s trial-and-error, and seeing what works with what is observed.

In the case of the iPath SeriesB S&P 500 VIX short term ETN (Ticker: VXX), the pattern is 10 years of futility as the product the VXX owns slowly decays away. 

Usually the trade is to the downside because that is the prevailing direction for VXX.

Until it isn’t. Like yesterday,

Here’s why it was different …

VXX Was Up on A Split Day

Words I don’t like to use are “never” and “always” in trading.

But VXX never rallies on a split day – or I should say almost never.

The reason why is that the decay factor in the product is multiplied, so a move “looks” bigger.  The VIX futures that VXX owns moves the same percentage, but VXX is a larger number now so it looks like more. VXX decays right now about .60 per week or $2.40 a month.

That is a hard way to start the month. VXX rallying simply means VIX futures are going up.  Considering the Fed Chairman just gave his Humphrey Hawkins testimony, they should be going the other way. The strikes post-split come out today and Mark and I will be hunting for trades in the Trading Desk.

Usually the best time to short VXX is after it has made a move up.

This is a technique you can learn in the Trade Desk every day.

The Rundown

Power Income Trader

Griff turned on the gas for a US Nat Gas Trust (Ticker: UNG) 1/20,2/3,2/17,3/17 13/12 call diagonal, 12.5 call calendar closed for a 30% gain.

Nitro Trader

Mark took gains in Amazon.com Inc. (Ticker: AMZN). Jan 19, 2024 90/120/150 call butterfly closed for a 45% gain.

To Your Trading Success,

AG