Shorting UVXY, TVIX, surviving, and profiting

[jimmyjazz]

Correct. Pick your expiry dates appropriately. Longer dated puts = lower theta. More capital at risk, though. What works for you?

In my view, the shock risk of these instruments more than justifies the theta drag. Just be disciplined. Roll up and out (or down and out) and park profits. Get out when contango starts to evaporate.

 

[Saltynuts]

Yeah I think constantly buying call to hedge with around 10% short interest rate, over 1000% capitial at account for margin call is not practical to win money. Just buying ziv makes more sense but i think even ziv would be closed to bust if market gets much worse for months.

Fair enough GloriaBrown. But let's say you didn't just keep any excess in cash. Let's say you kept a small ~10% interest in UVXY shorts. Maybe only 5%. The rest you keep, at least initially, in something simple, let's say SPY. Or maybe you go long (or short - might produce better long term resultsome of these 3x regular (lol) equity ETFs. 10% shorting UVXY, 20% in a 3x long fund (or shorting a 3x short fund, which I believe provides slightly better returns over time).

So, you lever out of your, call it, SPY, and lever into your UVXY short position, very slowly, over time.

Make any sense?

I think some of you are overthinking this. If you want to short UVXY, buy UVXY puts. Stop monkeying around with VIX options as a hedge. They're just too disconnected.

I've traded UVXY short this way for a couple of years, and SVXY long with long calls as well. It's not hard. Sometimes the shit hits the fan and your long option rapidly goes to zero. Oh well.

Pay attention to the VIX futures and get out when the "risk" seems too great . . . maybe F2/F1 contango drops to 5%, or goes into backwardation, or whatever works for you. Stay small until you've ridden through a few vol shocks.

Be aware that deep backwardation is often a great buying opportunity. There is risk, though. No free lunch.

The problem is jimmyjazz that people are not stupid, so sellers charge you and extra, super duper premium for that put (I too tried this in the past). Takes a huge piece of the upside potential. Thus, my thinking was you buy the VIX call options, and since VIX does not decay as fast, those options will not be priced as high. Does that make any sense?

 

[jimmyjazz]

Well, I've made pretty consistent money doing it, so I think it's a question of trade management as much as anything else.