hungry_hippo

UVXY - Why it's a bad idea to hold this long term

AMEX:UVXY   PROSHARES TRUST II
Several people have asked me about UVXY because I flip UVXY puts every now and then....

These leveraged VIX ETFs have terrible decay. It's not something you hold and hope for volatility to go up again some day.

If trading was that easy, everyone would do it. Instead the decay kills you. This is why I buy UVXY puts every time the market tanks, because I know the VIX has to come down eventually and UVXY decays.
Comment: Take note how this thing hit all time low today ($14.4), and the VIX hit 13.5, so this thing is gonna head to $13 when the VIX hits 12 again. That is what decay does....

Also, never buy VIX unless it's under 12, and even then it's a crap shoot. It stayed below 10 for a long time back in 2017.
Comment: I didn't mention why there's decay.... the underlying assets are options so there's always time decay.

Also, leveraging makes it worse, and UVXY and TVIX are leveraged. Let's use TVIX 2X as an example with a 10% move down and 11.1% move up:

Unleveraged:
100 -10% x 100 = 90
90 + 11.1% x 90 - 99.9

2x Leveraged:
100 - 2 x 10% x 100 = 80
80 + 2 x 11.1% x 80 = 97.76

So every time the underlying asset of a leveraged ETF moves up and down, it actually loses value even if the underlying asset recovers to the same price. Leveraged ETFs should only be used for short periods when you know the direction.
Comment: VIX is now under 12 and this thing headed below $13 as I projected. FUtures are overbought on my 3 hr chart, I think the market turns around tomorrow.

Still won't buy UVXY though, there are better plays out there.
Comment: I am not a professional trader, but I do have 3 engineering degrees, so the math part is easy....
Comment: VIX hit 15 today, and this thing didn't even hit $14. That is what decay does, this ETF is strictly for quick trades (2 or 3 days max). Do not accumulate and hold this.

This concludes the lesson on leveraged VIX ETFs.

Comments

Very nice explanation and great call
Reply
Yes I saw that also... puts are safer FFS!
Reply
hungry_hippo DaddySawbucks
@DaddySawbucks, Yeah, I posted this for you and a couple of other posters that asked about UVXY.

Now you know why I buy UVXY puts whenever the market tanks.
Reply
hungry_hippo DaddySawbucks
@DaddySawbucks, you know what's funny? I went through and warned a few other posters here on UVXY and a couple of them are firmly committed to their mistake even after I explained all of this to them. Some people can;t help but lose money even when someone generously spends time to explain it to them.
Reply
DaddySawbucks hungry_hippo
@hungry_hippo, Yeah I c how bad decay works even the markets got soft a bit the UVXY is less than it was a week ago!
Reply
Hmm I c how buying UVXY puts is a superb R/R bet after a tankoff, initially the price quickly reverses as panic calms, then it decays even more! Tyvm HH!
Reply
hungry_hippo DaddySawbucks
@DaddySawbucks, yeah, just use indicators to gauge the bottom, 2 hr charts on indices, 3 hrs on futures. Look at both MFI and RSI.

Better to short UVXY than to hold it. Option premiums are high so I do quick one or two day flips.
Reply
hungry_hippo DaddySawbucks
@DaddySawbucks, ya know, you keep talking about R&R, and shorting indices is about the hardest trade to time....
Reply
DaddySawbucks hungry_hippo
@hungry_hippo, Yeah I give up fukitt! Damn Trump!
Reply
hungry_hippo DaddySawbucks
@DaddySawbucks, if you're inclined to short stuff, you need to looks for stuff that doesn't trade with the indices. Chart patterns, candlesticks, and TA work better with individual stocks, especially those that don't trend with the market. Look at my ROKU post yesterday....

Shorting indices is about the hardest play out there except when the Fed raises interest rates like last year. Hold off on shorting indices until we see inflation or a commie bastard elected president. Bare minimum, use indicators, I just posted half hour ago that the market was overbought, now it's scrolling down....

I only plot the indices so I now which way to trend, go long when I think the market is heading up, look for stuff to short when arket looks to head down. Then buy UVXY puts if the market tanks.
Reply
Home Stock Screener Forex Screener Crypto Screener Economic Calendar How It Works Chart Features Pricing Refer a friend House Rules Help Center Website & Broker Solutions Widgets Charting Solutions Lightweight Charting Library Blog & News Twitter
Profile Profile Settings Account and Billing Referred friends Coins My Support Tickets Help Center Ideas Published Followers Following Private Messages Chat Sign Out