TheShortLife
Long

UVXY - Daily Price Range Below Bollinger Band

AMEX:UVXY   PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
Bullish . Have 100 shares riding overnight 14.47 - easy trade here.
VIX short term ETF/N's been an arse lately, diverging from VIX to the downside. If market does break to the upside & anything's possible, the downside will be even more of an arse. Saying that I'm short UVXY since Friday close, with tight stops.

Does the VIX know something?
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BobbyBlueShoes BobbyBlueShoes
By market i mean S&P, just to be clear.
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BobbyBlueShoes BobbyBlueShoes
Sorry i mean long UVXY. Grief, i wish i could edit. :-)
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TheShortLife BobbyBlueShoes
Aye, agreed if market breaks up hard ... UVXY is going to fall in price very aggressively. But that is my rationale for going long... UVXY is already pushed outside daily lower band, yet SPX500 is nowhere near the upper band. Which to me, SPX500 pushing out the upper bands = VIX/UVXY pushing out the lower bands. Yet that isn't happening here, so the move on the VIX drop is over exhuberant to the downside.
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BobbyBlueShoes TheShortLife
Generally that observation will hold true. Just note however, that UVXY is not perfectly correlated to VIX by design.

Firstly, it is based on an algorithm with inputs from mainly VI1 & VI2. Those do not always reflect the same price/risk.

Secondly, the price pushes in extremes by design. This is partly due to speculative pressures on this instrument but also the nature of the algorithm and the short term nature of the security's link to it's underlying security, the VIX. It is similar to the theta price erosion seen on warrants over time.

Add to that the compounded 1.6% p/a administration fee the underwriter "removes" from price over time. This works out to far more than 1.6% per year in real terms.

Don't hang around too long in an ultra short term VIX ETN. It will burn you over time. But should the market be in your favour, it's one of the most profitable in nominal terms.
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