Here, they serve a different purpose in these particular underlyings ( UVXY , VXX ) -- namely to take advantage of a short-term pop in (which were infrequent over the past year) without getting caught up in short-term gyrations may experience that may make shorter term setups frustrating because they run out of time for to mean revert and/or experience significant contango erosion or beta slippage (I have a few of those on that are, at best, "troubled" here).
Traditionally, I have seen two approaches to these long-dated setups intended to take advantage of occasional short-term pops: (1) setups that calculate the approximate erosion/beta slippage the underlying will experience on average over the life of the setup and then sells a credit spread or buys a debit spread at or near the strike at which the price of the underlying is likely to settle toward the end of the option's life; and (2) at-the-money setups.
Since a lot of different things can happen during the life of an option such that the average contango erosion or beta slippage is monkeyed with -- making an approximation of where price will potentially settle a less than accurate endeavor, I'm going with the latter type of setup here -- buying an at the money debit spread, with the spread straddling current price (i.e., the long above, the short below). A few tips ... .
(1) Since the UVXY leaps aren't the most liquid things in the world, a fill will require a touch of price discovery, so I will start with trying to get a fill for 50% of the width of the spread (hey, we can all dream, can't we) and then adjust the fill price to see if I can get a fill for no less than one-third the width of the spread.
(2) This isn't a setup for the impatient. It's a set and forget. With that in mind, keep the spread width and/or number of contracts small such that the buying power effect relative to your account size is within your risk parameters and leaves you with plenty of dry powder to take advantage of further pops in (they may have been infrequent over the past year, but they happen).
(3) Give some thought as to how wide you want to go with the spread. Going extremely narrow may, in essence, prevent you from "squeezing in" additional spreads in the particular leaps expiry you're using. If I put on the example shown here, I won't be able to buy 14/15 debit spreads going forward, since selling 14 short legs will close out the 14 longs of the 13/14's, so going wider with the spread and using fewer contracts may give you greater flexibility to use this expiry for further setups going forward. That being said, I can always sell 13/14 short call verticals in the without "stepping on" the 13/14 long put verticals, if I choose to go narrow with the debit spread.
(4) Early on, the ride could be "rough." High environments tend to have a short life, but that doesn't mean that higher can't last longer than it's comfortable for you as a trader or that any given period of time doesn't have the potential to do things that aren't "average" in nature of what we've experienced since February of 2016 (winner, winner, chicken dinner for short ... ).
Lot's of dry powder. Not ready to give up on the strategy yet despite all the CFAs in FinTwit proclaiming the end of the "short vol trade". I still believe that these ETPs will continue to decay over time and should return to "normal" in a few months, presuming we are in the midst of a correction within a bull market structure.