UVXY / VIX Bull Case
UVXY has a microphone formation (higher highs, lower lows), signifying a potential breakout soon. In my opinion, not if, but when $VIX closes above 25 and doesn't reject it instantly, letting it settle above for more than a day, we're going to see VIX rise exponentially fast. We got a taste of it Monday morning. I think VIX will hit 50 very soon given all the risks of the market. I've purchased call on UVXY exp 2/19 @ 10.5 strike today, representing 5% of my portfolio. I'll buy on any dips in the next week, and if VIX hasn't budged by then I'll roll my calls forward to 3/19.
The market is extremely overextended and needs a correction. Every extra day without a downward move we will have a more violent move:
Volatility risks are everywhere. Keep your portfolio safe and get into a volatility hedge soon.
The market is extremely overextended and needs a correction. Every extra day without a downward move we will have a more violent move:
- SPY at top 5% of overbought areas in the last 34 yrs
- SPY at valuation levels higher than any other time period other than pre/post 2008 and 2000 crashes. This is despite earnings being face-value "great" this week
- Earnings have been stellar from tech companies and other industries, however reactions have been very muted yet option pricing for downside starting to cost more
- Ushering in a new administration presents inherent unknowns. Unkowns = volatility potential
- Literally no more industries to rotate into as each have increased at historically overextended rates and have even subdivided everything from Crypto, EV, Weed, BLM, COVID, Stay at home, Tech, Solar, Oil, etc to continually try to rotate gains
- Lastly, we have a mania caused by redditors blowing up stocks to prices > 5000% inherent value. Bubbles appearing in certain names and when they start to pop, they will bring much of the market down with them. Since these bubbles popping will inherently be violent, the markets they drag will be violent as well, and that will cascade across most asset classes.
Volatility risks are everywhere. Keep your portfolio safe and get into a volatility hedge soon.
Comment:
Up ~200% on these calls so far. Didn't expect my thesis to play out so quickly, but very much in the initial stages in my opinion. I think VIX can hit 60+ and depending on how quickly or slowly we get there, UVXY can see 30-50, in which case the calls should be up 2000%-4000%. I will be scooping up more UVXY calls if VIX dips below 27. If you take a look at the history of VIX spikes, we need two or three consecutive days of VIX closing above 25 (or 30) to see a new rally to 40-50s and then 60-70 very shortly after. Stay safe out there.
Comment:
Lost ~15% on these calls today but averaged up at 2.85. Now holding 7% of my portfolio in a VIX hedge. Underlying GME volatility has been pretty spot on as an inverse correlation to VIX and I'm expecting high amounts of GME volatility tomorrow due to weekly contract expirations being ITM and short positions being assigned - the final leg of the epic short squeeze. I'm also still long GME but closed out of AMC.
There's been nervousness in the market for some time now, a sense of panic on Monday, a greater sense of panic yesterday, and soon it will be full blown - that's how psychology works. When panic is full blown, that's when you sell these contracts. It's a risky play as there will always be fakeouts since the game is inherently rigged by market makers and the FED needing to prop up the markets especially in the times of COVID; HOWEVER, VIX closed above resistance, meaning it may be new support and I would rather take the asymmetric reward risk here of a full blown VIX spike to 50-70 which would reward me at least 1000% on my calls vs a slow subsiding of volatility which would lose me up to 50% before I roll forward by end of next week.
There's been nervousness in the market for some time now, a sense of panic on Monday, a greater sense of panic yesterday, and soon it will be full blown - that's how psychology works. When panic is full blown, that's when you sell these contracts. It's a risky play as there will always be fakeouts since the game is inherently rigged by market makers and the FED needing to prop up the markets especially in the times of COVID; HOWEVER, VIX closed above resistance, meaning it may be new support and I would rather take the asymmetric reward risk here of a full blown VIX spike to 50-70 which would reward me at least 1000% on my calls vs a slow subsiding of volatility which would lose me up to 50% before I roll forward by end of next week.
Comment:
SPY is displaying the beginning of a bearish inverted cup and handle formation. Today we get the inverted cup and I believe SPY will open tomorrow near yesterday's double bottom support line @ 376. It will try to retrace to 380, which will act as new resistance and then will drop through 376 support to new lows. Keep a watch on low volume retracement. OR GME opens up +100% and the market gaps down instantly, either or.
Comment:
BIG UPDATE / POTENTIAL CONSPIRACY THEORY
I'm uneasy about a potential liquidity crisis in the making. Let me play you a scenario. ~20B losses suffered by GME shorts so far. Short float is still ~140%. Brokerages probably put buy restrictions on high short names this morning for one reason: The day before EVERY naked short call or naked short on these high short names were so ITM that even liquidation of entire portfolios couldn't cover losses. This is probably because brokerage margin requirements were MUCH lower than what they expected they needed to be and were not quick enough to increase those. So what happens next? Brokerage firms had to exercise ITM naked calls, liquidate near-entire portfolios to cover short losses, and deposit to the clearing house for those exercised calls. HOWEVER, if the investor doesn't have any money to cover these exercises, the brokerages have to pay the clearing houses out of their pocket because the investor doesn't have it. SO, there had to be a coordinated shutdown of buying these names to ensure these companies didn't blow up another 200% or else brokerage firms could have gone bankrupt just from the exponentially compounding losses.
This is the same concept as Feb 2018 when people who were short VIX blew up because of the magnitude of the % gain as well as the length exceeding a few days.
I think the same scenario can play out this time around if retailers can continue to push short names to higher magnitudes, and risk elevates even greater over longer time horizons. If the cumulative losses from shorts on high short names exceed 100B or more, EVERY brokerage firm may be at risk of liquidation. To make things worse, hedge funds right now are probably holding volatility lower to pickup VIX hedges for cheap, because they know if this continues, they will have to liquidate the rest of their portfolio's gainers to close short positions. That will drag down the rest of the market and will SPIKE the VIX. In which case, they will profit wildly off the impending market crash with their VIX hedges all the while destroy the average retail investor bag holder. Who wins at the end? The HFs or YOU if long volatility. This is a binary event that will play out next week. The risk of the calls are nothing compared to what can unfold.
I'm uneasy about a potential liquidity crisis in the making. Let me play you a scenario. ~20B losses suffered by GME shorts so far. Short float is still ~140%. Brokerages probably put buy restrictions on high short names this morning for one reason: The day before EVERY naked short call or naked short on these high short names were so ITM that even liquidation of entire portfolios couldn't cover losses. This is probably because brokerage margin requirements were MUCH lower than what they expected they needed to be and were not quick enough to increase those. So what happens next? Brokerage firms had to exercise ITM naked calls, liquidate near-entire portfolios to cover short losses, and deposit to the clearing house for those exercised calls. HOWEVER, if the investor doesn't have any money to cover these exercises, the brokerages have to pay the clearing houses out of their pocket because the investor doesn't have it. SO, there had to be a coordinated shutdown of buying these names to ensure these companies didn't blow up another 200% or else brokerage firms could have gone bankrupt just from the exponentially compounding losses.
This is the same concept as Feb 2018 when people who were short VIX blew up because of the magnitude of the % gain as well as the length exceeding a few days.
I think the same scenario can play out this time around if retailers can continue to push short names to higher magnitudes, and risk elevates even greater over longer time horizons. If the cumulative losses from shorts on high short names exceed 100B or more, EVERY brokerage firm may be at risk of liquidation. To make things worse, hedge funds right now are probably holding volatility lower to pickup VIX hedges for cheap, because they know if this continues, they will have to liquidate the rest of their portfolio's gainers to close short positions. That will drag down the rest of the market and will SPIKE the VIX. In which case, they will profit wildly off the impending market crash with their VIX hedges all the while destroy the average retail investor bag holder. Who wins at the end? The HFs or YOU if long volatility. This is a binary event that will play out next week. The risk of the calls are nothing compared to what can unfold.
Comment:
Calls up to +250% now. We may have one more volatile spike downwards, but this will be dependent on market making activities blowing up similar to a Feb 2018 VIX event b/c of liquidity issues, or volatility slowly subsides and things go back to normal. Change my calculations that UVXY probably can't go above 30 since M1/M2 futures are already at 30.5/31. If there was a VIX explosion because of liquidity issues with market makers, we should know early next week, and VIX would probably spike to 60 and M1/M2 maybeee 40's. Since UVXY tracks VIX based on M1/M2 roll yield UVXY probably can't go much more than 20's. In which case I will try to close my position out quickly on the spike and switch to a short VIX position. Maybe another 50-100% upside potential from here on the calls, so 350-500% total gain on them. But then on the short we should see an easy 25-50% gain.
Comment:
Sorry I didn't update this. But I closed out my positions Monday 2/1 when I saw the frenzy died. Monday was really the key day to understand whether the frenzy would continue or die off. The risk only materialized if more margin calls were issued from shorts blowing up and brokerages continued being pressured, causing the liquidity issue. Quickly opened a short position Monday and just closed that out today. I think we see sideways action until the next risk event starts to present itself.