Wednesday, February 15, 2017

A Bearish Spread on $UVXY

I wasn't planning on any trades today, I thought I'd hold some powder back, but an opportunity opened up and I decided to take it.  The $VIX climbed today and along with it, the $UVXY, the 2X Ultra VIX Short Term Futures ETF.  $UVXY is a function of the $VIX, which is known as the Fear indicator, a measure of volatility.  When the $VIX goes up, it generally means the market is going down, although that wasn't the case today. 

The market has been pretty complacent lately, and despite all the political rumbling, I didn't see anything that was an immediate reason for the spike in the $VIX or $UVXY, so I decided to open a trade against it.

I shorted the $19 March 24 call (next week's) and bought the $24 strike for the same time period. It gave me a net credit of just under a dollar at the time.  $UVXY was trading at $19.50 when I made the trade, up a dollar.  It gives me a week for it to drop back under $19 to get the full credit.  Remember, Monday is a markets holiday, which is calculated into the option price.

The stock traded as high as $20 and closed at $19.80, so I could have done a bit better.  We'll see.  I spoke to someone after the market close who said it was $VIX expiration this morning, and it's not usual for the index to behave oddly at expiration.  Technical mumbo-jumbo. If so, all the better for a pullback.

Good luck 


  1. My god, you actually have a blog and yet have no idea of what the underlying is in a Uvxy trade.

    First, Uvxy has NOTHING to do with the Vix. Period. Like assuming that an fruit orange in color is an orange. It's not.

    The Vix index tracks 30day forward implied volatility in the S&P Index options.

    Uvxy tracks the forward 2mnths of Vix futures. NO relation.

    Look up the Vix Term Structure. It is currently in Contango, which it usually is in Bull Markets, meaning future months contract price is higher than current spot price (11.97). This puts downward pressure on fwd vix future contract prices, that's why Uvxy's chart looks like it does, the gradual decay/erosion is due to those fwd contract prices dropping to meet spot...

    Literally every 3rd post on the Uvxy board consists of verbage indicating zero clue to what the etf actually does and what it's underlying is.

    All any of you have to do is read the prospectus.

    And please school any thread that claims this etf is It's doing exactly what is was designed to do.

    good luck...

  2. And the myriad of reasons it's up...

    1. Vix options expiration last night.
    2. Yellen speaking...
    3. Market euphoria worrying traders at these levels and futures traders are using March Vix futures as a hedge..
    4. Uvxy extremely oversold tuesday into the close and after hours, broke thru lower bollingers, always a place to get long if you get it (but not for long). Spx has to consolidate for a few days and this will start to drift back down if so...

  3. last, compare a Vix chart vs a Uvxy chart. That should tell you there's no realtion...

  4. I appreciate the comments. I'd argue the no relationship point, but it's not really important. They track the same, my purposes. It's like oranges and orange juice.