Friday, April 13, 2012

The VXX play

I am so tired of taking a beating on my portfolio each time the market decides to swoon for whatever reason. I have way too much money and energy invested in the market to be going through this over and over again.

Last year around July when the market had rallied for three good years following the "Great Recession" I was sitting in the cafeteria wondering what to do next in the market. Though the rally in the market had hurt me in 2008 it was not too shabby in 2011. But it took three long years and a really good rally to bring me back from the brink. It was that day that the market fell 400 points with high volume and a lot of conviction.

I sighed in dismay as I watched the stocks fall. First instinct was to sell the damn portfolio. But then what about all the buying I had done when the market was down. Wouldn't I lose my enty point. And what if the market was just doing a head fake. So for once I decided I will buy into the volatility rather than selling into it. Historically, I have always got shorting a stock wrong. I think the main reason for that is the decay time and the cost of the "put" that is hard to predict. So I went ahead and bought calls on VXX.

I did get it right for the next six months and I think the strategy is working to protect my portfolio to some extent. The good thing about playing options on the VXX is that you only really need to get the general direction of the market right and as long as it is not going straight up VX is probably not staying down either.

This is not a get rich quick scheme but my desperate attempt to protect what I have in the market from taking a knock each time I leave in in there without paying me back at least some of my losses. I may not get it right always but 200-300$ every 6-12 months to protect at least part of a larger portfolio seems to be a fair price to pay even if I get it wrong.

Now VXX is at 19 and the market is showing some conviction to the down side. I am on the VXX play again. Lets see if second time is also a charm.