A couple of days ago, I criticized an analyst's suggestion to sell volatility (VXX) and came up with two strategies: buying at-the-money puts and calls (strike $23 per unit) and buying out-of-money puts and calls (strikes at $18 and $28 per unit respectively). Now I would like to share the results of the strategies and make a final choice from the two for the next two months (the options are expiring on March 18, 2016). My first strategy (at-the-money options) cost $6.80 per contract: $3.50 for calls and $3.30 for puts. The price of VIX was about $23.50 back then. At the current VIX's level of $24.30 ($25.97 pre-market), the position is worth $6.78 per contract (the call contract is worth $3.90, while the put declined to $2.88 per contract). Hence, over the last two day, I lost two cents on the position per contact (multiply that by 100). Not a big deal, especially given the fact that VIX is heading higher today. Here is the situation with the Greeks, which obviously changed over the last two days: The above data represent at-the-money calls My Delta has increased significantly (from 0.598 to 0.633), while Gamma stayed unchanged. This means that a further 1% increase in VIX will increase the value of my call by about 63 cents (a 16% increase). At that level, the Delta will increase by 0.046, which, in turn, will further leverage my upside. Vega, which calculates the change in the value of the option given a 1% change in Implied Volatility (IV) has not changed. IV is very important here because, if the volatility, which is currently at 81% - a very high number - , drops, the value of my call may go down significantly. On the other hand, because my Delta is so high - and is expected to increase - , the net effect will still be positive. Other Greeks are not significant right now. The only thing I have to mention is that I am losing about 2.5 cents a days on my call options (i.e. time decay). The above data represent at-the-money puts As you can see, the Delta for the puts has decreased from -0.158 to -0.366 which means my puts options have become more sensitive to the change in price of VXX. At the same time, the Vega has also increased from 0.024 to 0.038 which means my puts have become even more sensitive to implied volatility, which is currently very high - near the level of 90.6. Both movements in the Greeks are not good for me: (1) implied volatility cannot stay high for long - as it drops, the value of my put gets destroyed, and (2) the Gamma has increased from from 0.032 to 0.041, increasing my Delta. This means that a further 1% increase in VXX will drive the value of my put increasingly lower (by almost 37 cents!) The current payout charts for this strategy looks as follows: (Source: OptionPrice.com) The above charts says that I will be in-the-money on my concentrated position if VXX either goes above $33 per unit or falls below about $20.5 per unit. It should open today at $26.42, according to the most recent data from Yahoo Finance.Overall, my strategy has a net Delta of about 26 cents (the call's Delta less the put's Delta). I like that. The only thing I am worried about is the high IV levels: 81.4 for the calls and 90.6 for the puts. A fall in that will obliterate my position in the short-term.On the other hand, I pulled historical data for implied volatility on VXX and here is what I saw: (Source: Yahoo Finance) Apparently, IV is testing levels it has not tested for about 4-5 years. In other words, IV has not been so high since 2011, when the Treasurys got downgraded from AAA to AA. The index touched the level of 25 twice in the past five months. Here is what I am thinking: this situation is either going to deteriorate with IV reverting to the mean or will aggravate with IV going above 25 to the level of 2010 or even 2011. We recently heard of RBS saying this year will be a cataclysmic year. Yesterday, J.P. Morgan reported good earnings but Wall Street Journal stated that: "J.P. Morgan Chase & Co.’s bankers and traders took pay cuts. The firm warned about potential energy losses looming. And Chief Executive James Dimon said an array of loan types are “obviously” going to perform worse". In addition, CFA Institute performed a survey of 600+ money managers and found that they are excessively bearish on China's economy: (CFA Institute) These news make me think that 2016 will be a different year than the previous two-three years. I think that volatility will stay high for the foreseeable future, and VXX may go through the roof. Now let us look at my second strategy. My second strategy (out-of-money options) cost $2.98 per contract: $2.20 for calls and $0.78 for puts. The current data show that the value of the position has increased to $3.26 per contract (a nice 9% gain). The call options are now worth $2.63 per contract, while the puts are worth $0.63 per contract. This is definitely a nice thing to see. However, I am increasing worried with implied volatility for the position. Not only IV is higher with this strategy than in my first strategy but the Deltas are also lower: The above data represent out-of-money calls The above data represent out-of-money puts As you can see, both Deltas and Gammas are lower here than in my first strategy. In addition, the Vega is for the call option is significantly higher than the at-the-money options' figure. The payoff for this strategy looks as follows: (Source: OptionPrice.com) The payoff boundaries in this strategy are shifted more to the left: the investor will make money if VXX declines below $18 (vs. the $20.5 mark in the previous strategy) or goes above around $31 per unit (vs. the $33 market in the previous strategy). The second strategy has a higher net Delta: approximately 31 cents for the concentrated position but a lower Gamma (~0.068 vs. the first strategy's ~0.087). This means that, while currently the second strategy is a better choice, the first strategy will be more profitable as VXX accelerates towards either direction. I personally favor the first strategy because it has a higher Delta for the calls and a lower break-even points on the downside. Let me know what your choice is!