VIX Home Run: Anatomy of a Trade

Roughly a month ago, I rebooted my entire trading methodology to include risk control, essentially structuring myself like a hedge fund. It's not entirely finished - the Long Term Invesntment (LTI) and Iron Condor (IC) sectors have not been booted up. It's only been a short while, but the Short Term Trading (STT) sector of the "book" has been doing pretty well, especially after this last trade!

The trade (that will probably be the best of the year) went a little like this:

Here's a daily chart of the Volatility Index (VIX), as seen on July 16:

That orange line is the "floor" on the VIX. it has rallied hardcore every time it nears that floor. The previous time was only a week before when it jumped from just under 11 up to 13 and change. So, I'm thinking it will probably do so again. I chose options that expire in September, as to not suffer from the "death by a thousand cuts" of Theta decay. I also figured that the risk/reward was pretty good, as the floor wasn't too far away, and VIX probably would not penetrate it.

So I bought 10 of the SEP14 11/12 put spread for 0.50, risking $500, or 2.5% of the total STT capital. When analyzing on the new brokerage software, at 13 and change, the previous high, the trade would net about +20%. Not bad. What happened next was kind of total luck...

The VIX skyrocketed 40% higher the next day as the markets sold off on news of the Malaysia Air flight that was shot down over Ukraine, which may or may not have had US citizens on board.

I was at work and was unaware this had happened until about 3pm. I checked my phone and was absolutely elated! (Not at the deaths of innocent people, obviously) I took a look at my VIX position, up $450 and just sold out immediately. What a return, 90%!

That leaves the total profit on STT at $666.15 (oh God!), or +3.33% in about 3 weeks, with an accuracy of 70% (7 winners, 3 losers).

As of now there are no open positions in STT. I'm looking at some new opportunities, but that's in store for the Weekend Review