I don’t have a trade for this Wednesday’s post.  Sometimes the best action is to wait patiently for prey.

music selection: “One Way Or Another” — Blondie

We had a recent volatility event.  Which is to say there was a market correction.  Falling asset prices in the S&P 500 tend to be a negative for a UVXY put investment.  People get scared, put purchases outpace call purchases, and the futures for the VIX start to rise moving our investment out of contango and into backwardation.  We develop unrealized losses.

There is a natural backstop against those losses though.  See one of the components of put prices is volatility itself. As UVXY moves further out of the money, there is pressure to lift the price of the put back up.  I was never down more than 15% despite roughly a doubling of the underlying security.  The VIX peaked at 53.29 (up from a low of 10.88).  We are already back down to 17.67.  Market shakeouts like that can evaporate quickly and UVXY can decay as quickly as it can rise.

UVXY itself is back down to 36.40 (all time low was 24.34.)  And my put is priced at this moment at 1.40.  Same as my entry price!  I could be back up hundreds of percent on an annualized basis again soon.  I’ll be holding until a lower strike is available to roll down to.  This will probably not happen until the next reverse split.  This is sure as rain and purchasing out of the money,  long dated, UVXY puts remains my highest conviction trade.

There will be no regularly scheduled Friday post as the Lizard King will be traveling.

Devour your prey raptors!

Musings on UVXY

Never miss another opportunity to devour prey!

2 thoughts on “Musings on UVXY

  • October 15, 2015 at 11:23 pm
    Permalink

    Hi Lizard King!

    Just wondering, how far OTM do you go with these long puts on short vol products? 10% ITM? 20%? How far out in time?

    I would imagine a longer time horizon is more favorable for premium paid per month.

    Reply
    • October 18, 2015 at 11:39 pm
      Permalink

      Hey JT. I usually go 50% out of the money and choose the longest available expiry. I want as much time as possible to be right.

      Reply

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