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Update VXX

I topped up my short position in VXX.

music selection:  “Every Day Is Exactly The Same” — Nine Inch Nails

My long puts in UVXY continue to be “dead money”.  My best guess is the position is ultimately a losing one (currently down over $13k.)  I expect to recover a lot of that but may take the hit early to harvest the tax loss.  The trade still works.  There is just a one off event from the reduction in leverage during the early year volatility events that left long options buyers holding the bag.

I have since taken to shorting VXX directly.  I tried this before with UVXY but the borrowing rate was punitive and shares to borrow often became scarce.  I was always getting a warning from my broker that my shares had been sold by a counterparty and they were searching for an alternative lender but I might be forced out at the market price if that effort failed.  VXX has proven to have much more reasonable borrowing rates and I have never gotten a notice that the broker is looking for shares to borrow.

I am now keeping 7.5% (notional) of my Interactive Brokers taxable account in VXX short shares.  Whenever my exposure falls 1,000 dollars below the target, I top up by shorting more shares.  To that end, I shorted 50 shares VXX at 32.40 today.  I now hold 728 shares short with proceeds of 29,488.  Exposure sits at 23,522 indicating an unrealized short term capital gain of 5,966.  Since February, my interest expense at the brokerage has been about 120 a month.  Some of that is from short positions in F and AMCX but most of it is from VXX (I am not aware of a report that would let me zero in on the details.)  At any rate, it seems I’m up about 5 thousand net.

I will be paring this trade back if the 2 year treasury yield passes that 10 year yield.  If the 90 day yield passes the 10  year yield, I will close it completely.

Devour your prey raptors!

{ 8 comments… add one }
  • MD June 7, 2018, 4:35 am

    Good stuff! Where do you follow the different yields? Are there tickers in trader workstation where can I put all of them to 1 chart and follow easily the comparison? Thanks!

    • The Lizard King June 7, 2018, 8:38 pm


      I go right to the source to monitor treasury yields. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

      The US Treasury is pretty reliable about publishing that information on a daily basis. If you want to compare the risk premium on corporates or high yield, you have to go to someplace like Yahoo! Finance or Google Finance and pull charts with two tickers. Yahoo keeps the 10 yr treasury in the highlight bar so it is easy to work with. I sometimes compare that to JNK to see if high yield is becoming attractive (it isn’t right now). The debt markets are sort of a hot mess right now. I expect something to give and steep risk premiums return for corporate bonds. There will be lots of opportunities to earn 10% interest and 15+% yield to maturity with less risk than equities.

      • MD June 15, 2018, 2:06 pm

        This helps a lot. Thank you

  • Hendrik June 7, 2018, 7:06 am

    Dear Velociraptor,
    I like your blog and have also bought UVXY puts. I am wondering what will happen to your short position if there is a volatility event (volatility soars) like the event in february 2018. Will you be forced to cover your short position in VXX? This is a risk that is in my mind very real, but happens not very often. What are your thoughts?

    • The Lizard King June 7, 2018, 8:32 pm


      The short position could be put into a forced to cover scenario if a severe spike makes shares hard to borrow. I had that problem with UVXY and abandoned the attempt. VXX seems to have a lot more shares available to borrow. Still, it is a valid risk. I might do as “David” suggests and switch to synthetic shorts (short call/long put at same strike). If you do that at a distant expiry, the large amount of time value makes it unlikely you will be assigned short shares.

  • David June 7, 2018, 2:55 pm

    You could use synthetic short futures from options(long put + short call) to save some borrow fees. I’m getting about $0.10 discount to spot for September VXX options which comes out to about 1% per year.

    I’m still a bit in UVXY, but I do it with short term deep ITM puts now. I treat the premium as the hard to borrow fee, which comes out to 1~1.5% per month. Not as exciting as OTM puts, but certainly more stable.

    I also moved to VIX puts until curve flattens back to late 2017 levels. When that happens, UVXY will becomes super sensitive to small VIX moves and decay fast. At the same time, VIX and SPX options should be cheap, so there should be a setup where you can be long convexity without paying much for it using UVXY, VIX and SPX options.

    • The Lizard King June 7, 2018, 8:30 pm


      I’m monitoring the hard to borrow fees. I might very well switch to synthetic shorts. That route is a little clunky in terms of topping up the position as you have work with a minimum of 100 shares. That is especially problematic right after a split. I like your long convexity trade!

    • MD June 15, 2018, 2:20 pm

      Long convexity you mean buying calls when volatility is extremely low and speculate / hedge cheaply?
      When VIX was less than 10 I used to speculate and sell PUTs for strike around 9 – 10 and it took even the smallest increase in vol to get to money.. that trade was working nicely in low vol environment.. so is this a similar approach?

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