How to Trade the Coming Melt-Up

 

Yo Pit Crazies,

 

If you want to sell premium at an elite level, click here.

 

Speaking of premium, the iPath S&P 500 VIX Short term futures index ETN (Ticker: VXX) is about to embark on a path of self destruction.

 

While I don’t think this will happen today, this cycle is setting up for a bloodbath of epic proportions.  

 

Why do I say that? VXX is about to own a bunch of VIX June 21 futures.

 

VIX is 16.91 and the futures are near 20.55. That is not a good recipe for VXX as the future premiums are 20% of the VIX cash price. Twenty percent of what VXX owns is pure juicy premium.

 

 

This week, I mentioned the potential Softbank-like unwind when the market decides to buy stocks other than the top-7 in the Invesco QQQ Trust (Ticker: QQQ). In the meantime,I expect QQQ to move. 

 

Thus a holy alliance was born.

 

VXX Has the Potential to Decay to 29.46

The trick I teach my students is to use Vol product decay in a stock like VXX to pay for other things. Things like a strangle in Apple (Ticker: AAPL).

 

Notice the Edge Hunter dashboard above, and see that the project decay level for VXX brings it down to 29.46 by Jun.21 expiration.

 

That is near $8 of destruction. 

 

Buy some VXX puts and if the market does not have a major meltdown, the VXX puts should pay.

 

With the QQQ stocks going nuts, I like the idea of buying cheap strangles in the AAPL June 16 cycle on a ratio with the VXX puts. Cheap AAPL strangles are under $2 and a VXX June 16 37 put should be close to $6 at least.

 

I like that trade for the Trading Desk or as a replacement for the Alphabet Inc (Ticker: GOOGL) calls in the Nitro Trader pair.

 

To Your Trading Success,

AG