Vol Trend strategy   -   Trade execution tutorial

If you're not familiar with options trading it may seem a little daunting at first but trust me, once you execute a couple of these trades you'll realize it's just as quick and easy as any other trade.  Whenever there is a new trade, simple trade instructions will be given in the daily email so you can easily follow the Vol Trend strategy.

Here's an example of what a trade might look like:

Screen Shot 2021-03-21 at 1.43.02 PM.png

Breaking down the shorthand lingo for those trade instructions above:

Short  -  This means it's an option contract we sell.

Long  -  This means it's an option contract we buy.

26 Mar 21'  -  This is the expiration date of the contract, in this case March 26th, 2021

VXX  -  Our Vol Trend trades are always on the volatility ETP called VXX due to the liquid options

12.00 Put  -  This is the VXX Put option strike price that margin account traders will sell

10.50 Call  -  This is the VXX Call option that cash account traders will also have to buy

For those who trade in Margin Accounts:

If you're in a margin account you can just sell the naked Put option directly.  Note that this will require the highest level of options trading approval from your broker which you will have to request permission for.  If you can't get permission for naked Puts, no problem.  You should easily be able to get approval for defined spreads, in which case you can just follow the instructions for the cash accounts and sell the Vertical instead.

Screen Shot 2021-03-21 at 10.03.18 AM.pn

The number of contracts you sell is always related to the short strike of the option we are selling.  You take the strike price * 100 and that's the "multiplier" for the trade.  Then with that you just take your Vol Trend strategy available capital and divide by the multiplier.

The Short VXX strike price  *  100  =  Multiplier

12.50  *  100  =  1,250$

Your Vol Trend capital  /  Multiplier  =  # of contracts   (always round down to nearest full contract)

Example)  10,000$ in available capital for Vol Trend:

10,000  /  1,250$  =  8

A person with 10,000$ would sell 8 contracts

Example)  25,000$ in available capital for Vol Trend:

25,000  /  1,250$  =  20

A person with 25,000$ would sell 20 contracts 

That's the 2nd line in the trade instructions where it says 1 contract per X$ in capital, it's always given.

For those who trade in Margin Accounts:

Those who are trading within cash accounts may still be able to Follow the Vol Trend strategy.  Many brokers still do allow "defined risk spreads" to be traded within those accounts.  The only adjustment we need to make here is that we also buy a further out of the money Long Put option.  This is now a defined risk vertical spread and should allow those in cash accounts to also participate.  The difference between selling a naked Put and a defined risk vertical spread is minimal to the functioning of the strategy and is materially very similar.

Screen Shot 2021-03-21 at 10.02.59 AM.pn

The trade "multiplier" is exactly the same for the Vertical spread as it is for the Short Put

The Short VXX strike price  *  100  =  Multiplier

12.50  *  100  =  1,250$

Your Vol Trend capital  /  Multiplier  =  # of contracts   (always round down to nearest full contract)

Example)  10,000$ in available capital for Vol Trend:

10,000  /  1,250$  =  8

A person with 10,000$ would sell 8 contracts

Example)  25,000$ in available capital for Vol Trend:

25,000  /  1,250$  =  20

A person with 25,000$ would sell 20 contracts