UVXY - Why it's a bad idea to hold this long term
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.
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:
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.
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.
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.
This concludes the lesson on leveraged VIX ETFs.
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.