My UVXY puts continue to be ‘dead money’.

music selection:  “The Locomotion” — Grand Funk Railroad

weigh-in:  198.4 (1.4)

I have made a lot of money in the past on the UVXY long put trade.  I expect to make more in the future.  For now, my current trade is deeply impaired.  The volatility events of January and February caused a severe disruption in the markets for VIX futures.  One VIX oriented fund was forced to liquidate.  UVXY reduced its target leverage from 2x to 1.5x.  This action really kneecapped the time value on my 6 strike puts.  It is also going to take longer for the puts to reach the money as the underlying now moves slower.

I have given it a lot of thought and come up with a plan.  I will try to hold until UVXY reaches 6 and no longer.  I will take whatever gain or loss the market is offering at that time.  If there is a loss, I will sit out the trade 30 days to avoid the wash sale rule.  I will then re-enter the trade.  Alternatively, I will re-evaluate in December if it is to my advantage to harvest a tax loss.  If I can secure another ACA credit by taking the loss early, I will do so.

As another option, I have been running an experiment with shorting VXX directly.  I tried this before with a direct UVXY short but the borrow rates were punitive and I kept getting forced out of the trade when my broker could not locate shares to borrow.  I have not had that problem with VXX.  There seems to be a much deeper pool of shares to borrow and the borrowing rate is more favorable.

I shorted 531 shares of VXX at 42.20 on 15FEB2018.  I shorted another 81 shares at 39.12 on 26FEB2018.  I did it again with 26 shares at 36.22 on 15MAY2018.  A final short sale of 40 shares at 33.76 was made on 21MAY2018.  I am targeting 7.5% exposure in my taxable Interactive Broker account.  Whenever I am 1,000 dollars or more below the 7.5% target, I top up the short.  I am currently sitting on 4,661 in unrealized capital gains.  The interest line on my brokerage account has been showing between 90 and 150 dollars a month.  I’m going to estimate the trade has cost me about 400 dollars to maintain.  The strategy appears to be worthwhile so far.

Devour your prey raptors!

Update UVXY

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4 thoughts on “Update UVXY

  • June 2, 2018 at 2:12 am

    What is your holding strategy for the VXX? Is the plan to have it long term e.g. 3-5 years and rely on the contango and yield roll through the storms?

    • June 2, 2018 at 1:48 pm

      Yes, exactly. It is a long term holding relying on contango. I’ll probably buy to close if the yield curve inverts though and wait that out.

  • June 2, 2018 at 7:38 am

    Same her for the UVXY position. Will try to get out with a small position but I will only enter when I can buy a put with more than 18 months left (so within 6 months of the dec 2021 appearing) as I think you might need the longer holding period at the moment.

    • June 2, 2018 at 1:50 pm

      The leverage change savaged long put holders. Unfortunately, this isn’t much individual investors can do except take their lumps.


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