NaughtyPines

UVXY OPTIONS -- NEARING DANGEROUS REVERSE SPLIT TERRITORY

AMEX:UVXY   PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF
Because UVXY             is subject to contango, it periodically has to undergo reverse splits to keep it from going to 0. The last split occurred in May of last year, when UVXY             was sub-10 and it is getting close to that area here.

In a nutshell, reverse splits wreak havoc with options positions ... . I won't go into the nitty gritty details here, but the Options Clearing Council (OCC) has a specific manner in which it handles options in reverse split situations, the result of which is "non standard contracts" with potential liquidity issues.

Because of these concerns, I'm shying away from playing UVXY             via options at all until after the split occurs or there is a volatility pop of sufficient depth to save it temporarily from a split. There are, after all, other instruments in which I can go long volatility without the headache of a potential reverse split occurring in the middle of my trade -- SVXY             short (which appears to have dodged the split bullet for a while), VXX             long (although there are even concerns with reverse splits in that instrument if volatility continues to hang in at low levels), and, of course, VIX             options.

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