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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!

{ 14 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.

      • Seb Loeb January 17, 2017, 4:14 pm

        Correct me if I’m wrong, but this would allow the contract holder to exercise at $30 (or whatever near the money strike) at any point until expiration, when UVXY has as recently as 2013 gone to $30,000 from around 3,000. If we extrapolate that 10x change to current price, that would be from 30 to 300; that would mean 100 shares called away at a strike of $300, which Malcom does not have, so a loss of $30,000 ?

        Am I understanding this correctly?

        • The Lizard King January 17, 2017, 7:41 pm

          If you have a naked call at 30, the counter party has the right to call shares away from you at 30. That would give you a short position of 100 shares with basis of 30 and 3,000 in cash deposited in your account. If the current price was 3,000, the unrealized loss would be 297,000 (3000 * 100 – 30 * 100), as the cash is still yours to keep. This is unlikely. The most UVXY has ever gained trough to peak is around 100%. So the realistic historical loss is 3,000 per contract. But most brokers require double margin for double levered instruments so the reduction in margin buffer is actually 6,000 per contract. You can get into trouble that way very quickly. I use naked calls sometimes to set up synthetic short positions. The key is keeping the position size sufficient small that it can’t blow up your entire account if the price runs away from you.

          • The Lizard King January 17, 2017, 9:50 pm

            Also note: Yahoo shows 52 week high is 1548, not 3000… Three thousand would be almost 10,000% gain. Not probable.

  • 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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