ProShares Trust Ultra VIX Short Term Futures ETF (UVXY)

[DrContango]

DC your post was very helpful thank you.

I assume, betting on little/no upward movement in VIX Futures (K3, etc), you are shorting UVXY. Can you also just go long SVXY and achieve a similar gain given the scenario you described with the term structure, contango, etc also assuming little/no upward movement in VIX Futures (K3, etc)

Dear ZappaGuy:

First, thanks for the props!

Second, I hope that you realize that our avatars are just one degree of separation!

Third, Eric gave you a most excellent response that had followed yours. However, I do wish to amend some points that he made.

However, short-selling carries the risk of a short-squeeze

This is absolutely true for stocks.

However, UVXY is NOT a stock; it is an ETF with a theoretical unlimited supply of units. Unless ProShares stops supporting the ETF as CS stopped issuing new notes to back TVIX a year ago, a true short squeeze is inconceivable.

For this reason, short sellers are advised to use a kind of "fractional reserve" system. You should only risk, let's say, one-fifth of your total portfolio, so you can be prepared for any spike.*

In essence, Eric is saying, manage risk, be it with excess capital, counter-positions, or options! I agree 100%


In response to SVXY, he is alluding to the beta decay faced by all inverse and leveraged ETPs. I have written on this subject many times on this board. Scan through all of my posts here since April 23 and you will find ample explanation!!!

Finally, I have reviewed your profile and your interests which seen to lie in technical trading.

UVXY is a derivative to the 7th power. Technical analysis really doesn't work here. Volume is moot as UVXY moves in tandem with its intrinsic value ^UVXY-IV which is a complex mathematical formula based on the proximal two months VIX futures.

All in my humble opinion, of course.


Happy huntin!


Doc


PS: Still going long with SVXY either with equity or ITM calls with long expiry is a winning play.

Furthermore, selling covered calls with SVXY or entering spreads with options is a great play, imo, because there is mucho delta built into the calls ATM and just OTM.