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Update UVXY puts

I sold my UVXY puts in the tIRA account.

music selection: “Shepherd Of Fire” — Avenged Sevenfold

I now hold no UVXY puts.  I’ll re-enter the position after tomorrow’s reverse split.

On 7DEC2016, I purchased 35 UVXY puts at the 6 strike and 18JAN2019 expiration.  I paid 3.90 a share.  After a nice move for volatility, I was able sell the puts for a good profit today.  I received 4.30 a share.  The trade was in force for 35 days and yields 106.96% annualized.

UVXY attempts to track double the daily movement in the VIX index by rolling the 14 and 40 days futures on a daily basis.  Contango in the futures market, cause the fund to repeatedly sell a “cheap” asset to buy an “expensive” one.  The double leverage compounds the folly.  The result is an ETF that declines approximately 90% per year.  I’ve found great success by betting against this dog with long dated out of the money puts.  I hope to continue with the trades many times in the future.

Devour your prey raptors!

{ 11 comments… add one }
  • Joe January 12, 2017, 6:39 am

    Based on what I learned here, I did this UVXY put trade less than two months ago and was able to make almost 15% in a month or so. Thank you for teaching us some smart investment plays. I will try another one again soon.

  • Seb Loeb January 12, 2017, 10:20 pm

    I did this also, with 8 and 9 strikes.
    In @ 5.44, out@5.71 = 5%
    In@ 6.23, out@6.89 = 10%

    I didn’t get in as early as you, and had to close out earlier due to some of my other positions moving against me, and not wanting to utilize a high amount of margin. Regardless, still profitable, and will continue to do these as well.

    is it time for some 5FDP or AllThatRemains?

  • Edward January 13, 2017, 5:55 pm

    Today I was trying to buy UVXY puts with Interactive Brokers. When I set up every order I get a message saying ‘the price has been capped to avoid the execution of your order at a price that is not consistent with a fair and orderly market’. Considering the cap price is way lower than the bid price of every UVXY option, there is no chance any order will be executed. Also, I cannot mark the ‘bypass market cap’ in settings. As I understand you use this broker for UVXY trades, am I missing something of program configuration or account settings?

    Thank you very much for the great blog!

    • The Lizard King January 13, 2017, 11:03 pm

      Liquidity is very poor for a few days after a reverse split and the brokers can have erratic behavior. Give it a few days and you should be able to get executed at a fair price. I wanted to buy puts at the 20 strike today but they weren’t on offer yet. I’m in the same boat (waiting) as you.

  • MU January 13, 2017, 11:40 pm

    Hi, congratulations on the high return! I would like to learn this method too. One question: usually the bid/ask spreads are very big for LEAPS puts, how do you do to make your orders go through? Thank you.

    • The Lizard King January 14, 2017, 1:18 am

      I usually adjust the limit price up until only my shares are bidding at that price. Then wait an hour or so for the market maker to move.

  • Malcolm January 14, 2017, 4:27 pm

    What are your thoughts on writing naked UVXY LEAP ATM to slightly OTM calls and just letting them decay over time?

    • The Lizard King January 14, 2017, 4:34 pm

      Can be dangerous. Keep position size small. Don’t forget IB will double margin requirement on double levered products.

  • Malcolm January 14, 2017, 4:51 pm

    Thanks. I have been experimenting with it, but am only willing to do a few contracts. The January 2018 premiums are ridiculous. Might have to weather a few spikes, but it will almost certainly be substantially lower at expiration.

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