Monday, June 29, 2015

I need Non-Correlated Assets

Whoo boy, what a day in the market, huh?  Tough for a long like me.  Yes, I am short ETFs, but they are inverse ETFs, so on a bummer of a day like this, I get slammed, and since they are leveraged, I really get slammed.  I did some trading to minimize the damage, but still some pretty steep losses.  

The concept was to have some funds that were not correlated with each other.  That is, I had a Russia, China, small caps, financials, biotech, oil and some others, so on other days, some were up and some were down.  Not today, everything got crushed, and my ETFs spiked.  Cost me a lot of money.

The point is, on a day like this, virtually everything is correlated.  So I either need to be more nimble, or buy some things that are inversely correlated, so that for sure I goes up while the other goes down.  I've tried that, and it works with these ETFs, but slowly.  I'll consider it again.

I sold a bunch of stuff, , including my $NUGT position.  Yyou can compare to a prior post to see the differences: The ETF Short List is a lot shorter tonight. I did keep the $UVXY, which got really hammered.  I saw it was the 11th highest spike in the $VIX since they have been keeping records.

Close Initial Short Gain (Loss) Percent
BIS                 30.08                         29.75                (0.33) -1.1%
TZA                   9.80                           9.90                  0.10 1.0%
VIXM                 54.86                         54.17                (0.69) -1.3%
FAZ                 11.76                         11.26                (0.50) -4.4%
UVXY                 44.50                         40.68                (3.82) -9.4%

Thursday, June 25, 2015

I covered $XIV Today

I covered my short on $XIV today, the Inverse VIX product.  Just about breakeven, made a little that went to commissions.

I think the market has slipped enough for now.  We'll see. The lousy market hurt many of my other positions, so a net loss for the day.

Close Initial Short Gain (Loss) Percent
NUGT                   8.77                         10.47                  1.70 16.2%
BIS                 27.83                         29.75                  1.92 6.5%
TZA                   9.05                           9.90                  0.85 8.6%
VIXM                 52.45                         54.17                  1.72 3.2%
RUSS                 33.67                         30.40                (3.27) -10.7%
CORN                 24.05                         22.68                (1.37) -6.1%
FAZ                 11.12                         11.26                  0.14 1.2%
UVXY                 33.49                         40.68                  7.19 17.7%
FXP                 29.06                         27.58                (1.48) -5.4%
SCO                 56.75                         55.93                (0.82) -1.5%

Wednesday, June 24, 2015

A Simple Explanation of Contango

Some of the ETFs and ETNs I follow tend to decline over time, and the explanation is something called contango.  It’s very impactful in $UVXY,  but exists in any product that uses futures.
You can look up the definition of contango in a lot of places.  Investopedia defines it as "When a market is "in contango" when the delivery price of a particular futures contract has to converge downward to meet the futures price." and that’s a good explanation, but if you don’t trade futures, it may still be hard to understand how it impacts these ETFs so severely. 
For an analogy, imagine that you are given $100,000 in a bank account.  As part of that gift you are required to buy a new car every month, and to trade in the previous one.  It’s pretty common knowledge that a new car will lose a $1,000 in value when you drive it off the lot.  It doesn’t matter if you use the car or not.

We will use that knowledge to see what happens to your bank account over time. Every time each month when you trade in the car, you receive $1,000 less than its cost.  Therefore, each month the value of the car goes down by $1,000.  If the price of the new car is different than the last one, the bank account balance may go up or down, but eventually, the loss of value will catch up to your bank account. 

If you buy a car for $20,000, your balance goes down to $80,000.  Next month, you’ll trade that one in for $19,000.  If you buy a car for $15,000, you’ll see a bump to $84,000, but that’s only temporary.  The following month you’ll only get $14,000 for the trade and if you buy a car at the original price of $20,000, your account will drop to $78,000.

This is how contango works.  There is always an ultimate decline in value because of the rolling of the futures to another month.  Sometimes it may be delayed, but it is going to happen. 

The opposite of contango is backwardation (I wonder if someone made this name up) and it can occur, but not very often or for very long.  This is why I sell these products short.   On a long term basis, time is on my side. 

A rough day in the market, as the dropping Dow caused my short positions to lose me money.  It’s only one day. 

NUGT                   9.03                         10.47                  1.44 13.8%
BIS                 27.61                         29.75                  2.14 7.2%
TZA                   9.05                           9.90                  0.85 8.6%
VIXM                 52.48                         54.17                  1.69 3.1%
RUSS                 33.12                         30.40                (2.72) -8.9%
CORN                 23.36                         22.68                (0.68) -3.0%
FAZ                 10.90                         11.26                  0.36 3.2%
UVXY                 33.00                         40.68                  7.68 18.9%
FXP                 28.14                         27.58                (0.56) -2.0%
XIV                 48.78                         48.70                (0.08) -0.2%
SCO                 55.57                         55.93                  0.36 0.6%

Tuesday, June 23, 2015

$UVXY You Can Buy, You Can Short, but Never Do This

$UVXY is the Proshares Ultra VIX short term Futures ETF.  Per Yahoo! Finance The Ultra Fund seeks daily results that match (before fees and expenses) two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index.

A couple of important items there.  Ultra means 2X.  So this will be twice as volatile as it's cousin, the $VXX, which is plenty volatile.  The part is the intention to deliver DAILY results.  One can question whether this happens, but there is no question that on anything past one day, you will see a wide departure from the VIX.

The VIX is a specialized product that attempts to judge the volatility in the market.  I could go into a long winded explanation of how each of these products works, but for now, it's enough to know that when the VIX works in the opposite of the stock market (specifically the SPX) and that the market goes up, the VIX goes down.

When the VIX shoot up, $UVXY will shoot up, twice as fast.  When the VIX goes down, $UVXY craters.  When nothing much happens, $UVXY will fall from contango, which is essentially the decay of futures contracts on the VIX.

As I said in the title, you can buy $UVXY if the $VIX is rising in the short term.  You can short it if the $VIX is falling or if it not moving.  What you shouldn't ever do is buy and hold $UVXY.  It will slowly decay because of the contango.

$UVXY has only been in existence since October 2011,  In that time the split adjusted price has gone from $395,000 to $31.

Read that again.  I'm not kidding.

Never hold it more than a day or two.  I really don't even recommend buying it, but I know some people will.  Good luck.

A good day on the market for me.  I shorted $XIV as a hedge, but it wasn't necessary to today.

Close Initial Short Gain (Loss) Percent
NUGT                   9.00                         10.47                  1.47 14.0%
BIS                 26.77                         29.75                  2.98 10.0%
TZA                   8.82                           9.90                  1.08 10.9%
VIXM                 52.32                         54.17                  1.85 3.4%
RUSS                 30.64                         30.40                (0.24) -0.8%
CORN                 23.43                         22.68                (0.75) -3.3%
FAZ                 10.65                         11.26                  0.61 5.4%
UVXY                 31.81                         40.68                  8.87 21.8%
FXP                 28.22                         27.58                (0.64) -2.3%
XIV                 49.68                         48.70                (0.98) -2.0%
SCO                 54.13                         55.93                  1.80 3.2%

Monday, June 22, 2015

I shorted more $VIXM on Friday

Sorry, a little behind in posting.  I shorted more of the mid-term VIX product.  I really think this is a good move.  These tend to drop more slowly but more consistently than the short term ETNs like $VXX or $UVXY.  They also don't spike as high when the market turns down. Does require a longer term outlook, but it's worth it.

Overall, a really good day for my short Bear Positions.  Also $NUGT dropped like a rock along with gold. This is a scary time, as big moves tend to lead to reversals.  We'll see, but I don't intend to cover anything.

Close Initial Short Gain (Loss) Percent
NUGT                   8.96                         10.47                  1.51 14.4%
BIS                 26.81                         29.75                  2.94 9.9%
TZA                   8.89                           9.90                  1.01 10.2%
VIXM                 52.72                         54.17                  1.45 2.7%
RUSS                 30.49                         30.40                (0.09) -0.3%
CORN                 23.04                         22.68                (0.36) -1.6%
FAZ                 10.73                         11.26                  0.53 4.7%
UVXY                 33.56                         40.68                  7.12 17.5%
FXP                 29.64                         27.58                (2.06) -7.5%
SCO                 55.75                         55.93                  0.18 0.3%

Thursday, June 18, 2015

A very good day on the market

No changes to my positions. No price update tonight.  My bear ETFs all dropped with the market advance. Got hurt by $NUGT, but overall a very good day.

Wednesday, June 17, 2015

I Shorted More $FAZ Today

As the headline says, I took advantage of a small pop to add some more $FAZ on the short side today at $11.06.  I was ahead on it a lot after the Fed no-decision, but the price recovered a bit and hurt my short.

I am short a bear ETF, so if it declines, that's good for me.   I also covered my $XIV short I was using as a hedge.  Made a small amount of money, but there doesn't seem to be a big need for a hedge post the Fed meeting.

Greece is still out there unresolved, but I expect that to continue for a long time.  If anyone is really hurt by a default, it's their own fault, we known about this risk for years.

Here is the updated Short List.  I adjusted the beginning price of my $FAZ short.

Overall a negative day, even though a lot of my positions gained.  $NUGT went up sharply after the Fed and that hurt me.  I am still up on that one overall.

Close Initial Short Gain (Loss) Percent
NUGT                   9.70                         10.47                  0.77 7.4%
BIS                 29.41                         29.75                  0.34 1.1%
TZA                   9.44                           9.90                  0.46 4.6%
VIXM                 54.18                         54.60                  0.42 0.8%
RUSS                 30.55                         30.40                (0.15) -0.5%
CORN                 23.07                         22.68                (0.39) -1.7%
FAZ                 11.02                         11.26                  0.24 2.1%
UVXY                 38.61                         40.68                  2.07 5.1%
FXP                 30.00                         27.58                (2.42) -8.8%
SCO                 55.58                         55.93                  0.35 0.6%

Tuesday, June 16, 2015

A Double Negative Equals a Positive

No changes to the Short List.  A good day overall, as most of my positions gained.  To keep clarifying, my positions are mostly short sells of Inverse ETFs, which means that when the market goes up, my ETFs go down and I make money.

A double negative equals a positive.  although $NUGT is my best position and it's not a Bear ETF, just a lousy Bull ETF, for the Gold Miners.  $FAZ and $TZA are more typical of what I am trying to do.  A huge drop for $RUSS today gets me back to even.

Close Initial Short Gain (Loss) Percent
NUGT                   9.03                         10.47                  1.44 13.8%
BIS                 29.77                         29.75                (0.02) -0.1%
TZA                   9.41                           9.90                  0.49 4.9%
VIXM                 54.25                         54.60                  0.35 0.6%
RUSS                 30.64                         30.40                (0.24) -0.8%
CORN                 22.70                         22.68                (0.02) -0.1%
FAZ                 10.97                         11.45                  0.48 4.2%
UVXY                 38.80                         40.68                  1.88 4.6%
FXP                 30.22                         27.58                (2.64) -9.6%
XIV                 45.49                         46.56                  1.07 2.3%
SCO                 55.16                         55.93                  0.77 1.4%

Monday, June 15, 2015

I shorted $SCO today

I added a short position, $SCO Proshares Ulrashort Bloomburg Crude Oil.  This is an inverse ETF, so if the price of oil goes up, this goes down.  My strategy is that oil has bottomed on a long term basis and has had a brief fall back, which I consider to be short lived.  So I am short $SCO, if it goes down I make money.

I often get questions, why not just buy $UCO (it's opposite number).   My answer always is, look at the long term chart.  These leveraged ETFs decay over time.  Look at the year to date performance.

$UCO is down 8.33%
$SCO is down 27.14%

Yes, both of them are down, even though, on a daily basis, they are supposed to be opposites of each other.  Enough said.

A rough day otherwise in the markets, although I wasn't hurt too bad, for some reason the Russian market was up and that helped me.

Close Initial Short Gain (Loss) Percent
NUGT                   9.39                         10.47                  1.08 10.3%
BIS                 29.88                         29.75                (0.13) -0.4%
TZA                   9.60                           9.90                  0.30 3.0%
VIXM                 54.76                         54.60                (0.16) -0.3%
RUSS                 32.16                         30.40                (1.76) -5.8%
CORN                 22.41                         22.68                  0.27 1.2%
FAZ                 11.14                         11.45                  0.31 2.7%
UVXY                 40.31                         40.68                  0.37 0.9%
FXP                 29.43                         27.58                (1.85) -6.7%
XIV                 44.72                         46.56                  1.84 4.0%
SCO 55.85                         55.93                  0.08 0.1%

Saturday, June 13, 2015

Why I am short $VIXM Mid-Term Volatility ETF

I don’t think many people follow this one, so I will be brief.  I am short the Proshares VIX Mid-Term Futures ETF, ticket symbol $VIXM.  Per Proshares, this Fund is designed to track the VIX: 
  • The CBOE Volatility Index® (VIX) is a widely followed measure of the expected volatility of the S&P 500. Since the VIX is not directly investable, S&P 500 volatility exposure is often achieved through VIX futures. Each of the VIX futures indexes measures the movements of a combination of VIX futures and is designed to track changes in the expectation for VIX over a specific time window in the future. As a result, the S&P 500 VIX Mid-Term Futures Index and VIXM can be expected to perform differently than the VIX.
As with the other funds I am short, this ETF tends to go down over time due to contango issues.  If you are not familiar with contango, I’ll discuss it more later, or you can find a lot of information on the web about it.

Because it tracks the mid-term VIX futures, which are out 4-6 months, this fund  is not as volatile as the $VXX, which tracks the short term VIX, or $UVXY, which is 2X the $VXX.   

If you look at the performance of the $VIXM, it is down 14.54% year to date.  I am short it, because I think this will continue.  Why not?  What’s changed?  Why swim against the tide?  Like all investments, it is subject to short term fluctuations, so I intend to hold the short it for as long as I can. 

It is based on the same index as the $VXZ, which is a more popular fund, but I couldn’t borrow any shares of that to short.  Even with $VIXM, I couldn’t get as many as I wanted, so my position is pretty small compared to the other funds on this list.  

And just to be clear, being short it means I make money when it goes down.  Generally, the this works inversely to the market.  On a daily basis, if the $SPY goes up, this will go down.  It is not a perfect relationship, though. 

No change to my positions, here is how they ended the week.  Friday was down, as the overall market was down a lot.  My positions weren't hurt too bad, primarily because of NUGT and FXP 

Close Initial Short Gain (Loss) Percent
NUGT                   9.37                         10.47                  1.10 10.5%
BIS                 29.85                         29.75                (0.10) -0.3%
TZA                   9.52                           9.90                  0.38 3.8%
VIXM                 53.87                         54.60                  0.73 1.3%
RUSS                 34.19                         30.40                (3.79) -12.5%
CORN                 22.77                         22.68                (0.09) -0.4%
FAZ                 10.99                         11.45                  0.46 4.0%
UVXY                 37.15                         40.68                  3.53 8.7%
FXP                 27.76                         27.58                (0.18) -0.7%
XIV                 46.70                         46.56                (0.14) -0.3%

Thursday, June 11, 2015

I shorted $XIV today

I had a couple good days and the VIX had dropped pretty strong so I shorted some $XIV as a hedge. $XIV is the Velocity Shares Daily Inverse Short Term VIX ETN.

So, it's a play on decreased volatility, when the VIX goes down, the $XIV goes up.  It's a bit more complicated than that, primarily because of the Daily in the name.  Over time, this hasn't been too great of a performer, not nearly going up as much as the $VXX or $UVXY goes down.  Since I have $UVXY short, this acts as a hedge, but not a complete one over time.

Another good day for the market, another good day for my short Bear ETFs.

Close Initial Short Gain (Loss) Percent
NUGT                   9.60                         10.47                  0.87 8.3%
BIS                 29.13                         29.75                  0.62 2.1%
TZA                   9.42                           9.90                  0.48 4.8%
VIXM                 53.67                         54.60                  0.93 1.7%
RUSS                 32.68                         30.40                (2.28) -7.5%
CORN                 22.99                         22.68                (0.31) -1.4%
FAZ                 10.89                         11.45                  0.56 4.9%
UVXY                 36.25                         40.68                  4.43 10.9%
FXP                 28.22                         27.58                (0.64) -2.3%
XIV                 47.34                         46.56                (0.78) -1.7%

Wednesday, June 10, 2015

Why am I Short $CORN

Why am I short $CORN?  I think that was supposed to be "why I am short corn," but it is probably better phrased as a question. Maybe one of you can tell me. 

I shorted because I thought the Teucrium Corn ETF was going to decline in similar ways to the other ETFs on my list below.  We'll see if that's enough. 

Let me say. I am not a farmer or a technician, so I have no idea what future price of Corn will be. (Spoiler. No one else does either. ). But, it's not necessary to my strategy, which is to take advantage of the design of these ETFs for long term decay. 

This different from the others on my loist in that it isn't a leveraged ETF, but otherwise has some similarities.

Yahoo! Finance gives the following definition on how the Fund works: "The fund normally invests in Benchmark Component Futures Contracts or, in certain circumstances, in other Corn Futures Contracts traded on the CBOT or on foreign exchanges. In addition, it also may invest in exchange-traded options on Corn Futures"

That's a mouthful, and it doesn't say it owns on ear of corn.  It depends on instruments and futures, both of which decay over time. Which has a negative long-term impact on the price of the ETF   It also has a high expense ratio which come out at the expense of the share price. The fees are currently listed as 2.92% per year.  If you look at the price of corn futures and find a similar price in the past, you will likely find that $CORN is worth less than at the same time.  

Short term, this ETF may be a great buy, but I am playing a long game.  Good Luck.  Nothing here is a recommendation to buy or sell anything. 

It was a great day in the market.  See below for my positions.  Remember, I am short all these, go a loss is my gain. 

Close Initial Short Gain (Losss) Percent
NUGT                   9.96                         10.47                  0.51 4.9%
BIS                 29.58                         29.75                  0.17 0.6%
TZA                   9.51                           9.90                  0.39 3.9%
VIXM                 54.33                         54.60                  0.27 0.5%
RUSS                 31.98                         30.40                (1.58) -5.2%
CORN                 23.06                         22.68                (0.38) -1.7%
FAZ                 11.04                         11.45                  0.41 3.6%
UVXY                 37.88                         40.68                  2.80 6.9%
FXP                 28.71                         27.58                (1.13) -4.1%

Tuesday, June 9, 2015

Leveraged ETF Short List Update

Running late, so all I have is an update to closing prices.  A good day for the fund, on a flat day for the markets.  $RUSS and $NUGT dropped, which is good for my short positions

NUGT                   9.69                         10.47                  0.78
BIS                 30.38                         29.75                (0.63)
TZA                   9.89                           9.90                  0.01
VIXM                 55.45                         54.60                (0.85)
RUSS                 33.88                         30.40                (3.48)
CORN                 23.48                         22.68                (0.80)
FAZ                 11.53                         11.45                (0.08)
UVXY                 41.49                         40.68                (0.81)
FXP                 28.22                         27.58                (0.64)

Watching the NBA Finals tonight.  Go Cavs!