Shorting UVXY, TVIX, surviving, and profiting

S

Saltynuts

So, a few things. I've made some money shorting these things, but stay very light given that they could go up many hundred percent at any time.

But these things LOVE to drop over time. I mean like on average pretty much a total wipeout yearly (and really more if you replace losses over time by shorting more). BUT, there is the HUGE wipe-out scenario that one has to watch out far. It WILL happen if you are not careful.

So. A couple ways to be careful. One is, only short this in an amount that is a very small portion of your portfolio.

Second, buy VIX calls that are way out of the money (let's say, at 40 or 45 or something), but that would prevent you getting wiped out in a total wipeout scenario. These are typically very, very cheap given that the wipe-out scenario (VIX spiking to 80 or something) happens so infrequently. Buy them for the next coming expiration period, and probably the one after that. So that way if the VIX does go through the roof, if only for a temporary, instantaneous period, you will be covered.

You'll have to buy enough to make sure you are covered GIVEN THE GROWTH IN YOUR SHORT POSITION THAT WILL OCCUR. Thus, if the VIX is at $20, you have $100,000, and you buy a 45 call, you'd have to buy enough to fully offset $225,000 of VIX, because that is what your UVXY has done (I know it is supposed to be 2x, but it really moves more like 1x based on the studying I've done of it).

So you have the hedges in place. I believe the "drag" on the UVYX/TVIX is like in the order of 15% monthly (please let me know if this is off). So, on average this would be $15,000 per month on a $100,000 short. I suspect the hedges above would cost only a small part of this, but let's call it $5,000 on average per month. That leaves you with $10,000 per month. $120,000 per year off a $105,000 investment we'll call it, with (hopefully) your wipeout scenario avoided.

Thoughts?

Thanks!
 
GloriaBrown said:
UVYX/TVIX raised 300% enough to cover this risk?
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I would think so - VIX goes from 8 to 24 (300%), I'd be eating that, but VIX goes from 20 to 60 (300%) I'd generally eat the run from 20 to 45 in my example, but be covered beyond that I would think. That's the goal anyways!
 
Saltynuts said:
So, a few things. I've made some money shorting these things, but stay very light given that they could go up many hundred percent at any time.

But these things LOVE to drop over time. I mean like on average pretty much a total wipeout yearly (and really more if you replace losses over time by shorting more). BUT, there is the HUGE wipe-out scenario that one has to watch out far. It WILL happen if you are not careful.
More...

I have considered this strategy and would not rule it out. But remember that we have been in a bull market since March 2009. Shorting VXX means you are effectively long the S&P 500. Have you made more money than if you had been long the equivalent in e-mini S&P futures?
 
No idea ajensen, good point. Maybe it all comes down to essentially just different ways to get to the same thing. Going to try and put some numbers to this.
 
What broker are you using to short those. .I tried shorting the VXX and UVXY yesterday and no luck....

I would wait for another solid run to 40+ on the vix before shorting either of those now
 
And S2007S, I can't short them all that often. Just rarely, and almost always when they are MUCH shy of 40 haha. Other people already know to short them when they spike.
 
Saltynuts said:
So, a few things. I've made some money shorting these things, but stay very light given that they could go up many hundred percent at any time.

But these things LOVE to drop over time. I mean like on average pretty much a total wipeout yearly (and really more if you replace losses over time by shorting more). BUT, there is the HUGE wipe-out scenario that one has to watch out far. It WILL happen if you are not careful.

So. A couple ways to be careful. One is, only short this in an amount that is a very small portion of your portfolio.

Second, buy VIX calls that are way out of the money (let's say, at 40 or 45 or something), but that would prevent you getting wiped out in a total wipeout scenario. These are typically very, very cheap given that the wipe-out scenario (VIX spiking to 80 or something) happens so infrequently. Buy them for the next coming expiration period, and probably the one after that. So that way if the VIX does go through the roof, if only for a temporary, instantaneous period, you will be covered.

You'll have to buy enough to make sure you are covered GIVEN THE GROWTH IN YOUR SHORT POSITION THAT WILL OCCUR. Thus, if the VIX is at $20, you have $100,000, and you buy a 45 call, you'd have to buy enough to fully offset $225,000 of VIX, because that is what your UVXY has done (I know it is supposed to be 2x, but it really moves more like 1x based on the studying I've done of it).

So you have the hedges in place. I believe the "drag" on the UVYX/TVIX is like in the order of 15% monthly (please let me know if this is off). So, on average this would be $15,000 per month on a $100,000 short. I suspect the hedges above would cost only a small part of this, but let's call it $5,000 on average per month. That leaves you with $10,000 per month. $120,000 per year off a $105,000 investment we'll call it, with (hopefully) your wipeout scenario avoided.

Thoughts?

Thanks!
More...
How many threads on Vix ETFs are you going to start? You're cluttering up the board. You can ask all one thousand of your questions in one thread. Thanks homie
 
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