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Update UVXY

I rolled UVXY puts today.

music selection:  “The Rest For The Wicked” — Sohodolls

On 17JAN2017 I bought 20 strike puts with the 18JAN2019 expiry for UVXY for 12.95 a share.  Today, I was able to sell those puts for 13.60 a share.  The trade was in force for 28 days and yields 65.43% annualized.

I have moved down to the 13 strike with UVXY190118P00013000 at 8.20 a share.  I bought 20 shares in my tIRA account and 35 in my taxable account.  Target holding period is 30 days but that may be shorter if the puts move into the money sooner than that.

The average return for the two closed UVXY positions so far this year is 46.17% annualized.  Since I target 10% of my portfolio in UVXY puts, I’m on track to add 462 basis points to my annual return.

This trade remains my highest conviction idea.  The ETF is constructed to buy the 14 and 40 day futures and roll them daily.  Contango in the futures markets ensures they will typically sell a “cheap” asset to buy an “expensive” one.  Decay of 90% of the fund value a year is virtually certain.

Devour your prey raptors!

{ 14 comments… add one }
  • MU February 14, 2017, 9:34 pm

    Thank you for the update.

  • catfishwizard February 16, 2017, 3:24 am

    Just to be clear that is 20 *contracts* in the the tIRA and 35 *contracts* in the taxable, right?

    That is a very high conviction idea.

    I still can’t commit that much to it yet as I continue to suffer from “it must be too good to be true” syndrome…I think I can muster the courage to commit 3-5% though.

    Even at the low percentage allocation it has not failed to disappoint.

    I remain flabbergasted that such a thorough and efficient destroyer of capital can continue to attract so much fund flow.

    • The Lizard King February 16, 2017, 2:29 pm

      Thats right. 55 contracts in total. The fund is a real dog. It should be against the law to create a product so bad.

  • easydividend February 16, 2017, 6:28 am

    i have to try this kind of options play too, but I am a little bit scary.
    What if the volatility goes up extremely?

    thanks for sharing!

    • The Lizard King February 16, 2017, 2:30 pm

      Volatility can spike sharply and put this play deeply in the red. That’s why I like the longest dated LEAP put available. I want lots of time to be right. It has happened to me before that I ended up deeply underwater. After about 9 months I still ended up with a 16% annualized return. Patience grassahoppa.

  • financialfreedomsloth February 16, 2017, 3:10 pm

    I just dipped my toe into the UVXY waters. Bought 3 of the same contracts but thanks to the recent surge in prices I got them at 8 USD.
    I agree completely with your analysis of this product, it’s complete crap and should go down over time thus making the puts more valuable.

  • Chris B February 16, 2017, 5:00 pm

    It seems hard to imagine this product continuing to exist much longer. I mean, who is going long? What insurance function does it provide for the share owners?

    I also wonder how long the options market will be maintained. Who keeps selling you those puts? A Black-Scholes computer program that only considers volatility and that is insufficiently monitored?

    It might be wise to create a list of similar junk funds for the rainy day when this gravy train ends.

    • The Lizard King February 16, 2017, 7:42 pm

      The fund advertises itself as a short term trading vehicle only. It is probably possible to make money on both the long and short sides if you are good technical analyst by doing 2-3 day swing trades. I can’t imagine anyone holds long positions for an extended period of time. That would just be stupid. There are other junk funds but VXX is the only one I know of with options.

      • Chris B February 16, 2017, 8:54 pm

        Yes, and this options market could easily close. But by all means make hay while the sun shines!

        Favorite line from the prospectus:

        “Potential negative impact from rolling futures positions. There have been extended periods in the past where the strategies utilized by the Funds have caused significant and sustained losses.”

        I would think bid/ask spreads would be a bigger hit than contango. From what I read, the fund churns trades constantly.

  • Joe February 17, 2017, 6:29 am

    Thanks for the update. I will have to get back to buying some of these options soon.

  • Duncan May 1, 2017, 2:11 pm

    What do you think is going on with these put prices?

    I’m running this trade at a slightly higher strike (14) than you currently, but it looks like it’s true for the UVXY190118P00013000 strike as well. We’ve dropped ~30% in the underlying and bid/ask basically hasn’t moved?

    Is it just due to VIX being “unnaturally low” in the markets perception?

    Normally we’d expect a fairly sizable jump as we’ve moved ITM, wouldn’t we?

    • The Lizard King May 1, 2017, 4:26 pm

      Normallly, the bid/ask moves with the underlying. But put prices are driven by a combination of things: volatility premium, underlying interest rates, and especially future perceptions. I find sometimes its necessary to let the play run a dollar or more into the money to exit profitably. Good luck to you!

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