Looking at that guaranteed long-term loser UVXY. Now there are many ways to trade this ETF, but looking only at short LEAPS, would an ATM, DITM or OTM offer the best ROI-probability ratio when the LEAPS become available -- next month, I think?
UVXY LEAPs are available every 6 months or so, so you can already get them for June 2021. And all those puts are priced to not allow for much edge, so put spreads might be a better idea. For example a $30/$25 spread has similar ROI to $30 put, but with much better break-even point on the spread. Though puts could be better for trading, for example buying them on VIX spikes above 24 and exiting soon later.
Similar to what I have mentioned using DXD or SPXS you get a nice near constant downtrend. Here are monthly (3rd Friday to 3rd Friday at Close) stats for UVXY: UVXY TOTAL MONTHS = 78 DOWN MONTHS = 55 UP MONTHS = 23 %UP MONTHS = 29% AVG PCT UP = 26.19 %DOWN MONTHS = 71% AVG PCT DN = -23.29 AVG MONTHLY RETURN = -8.7 DROPS >= -8% = 53 UP IN A ROW ONE IRUP = 11 TWO IRUP = 4 THREE IRUP = 1 FOUR IRUP = 0 FIVE IRUP = 0 SIX IRUP = 0 SEVEN IRUP = 0 EIGHT IRUP = 0 NINE IRUP = 0 TEN IRUP = 0 DOWN IN A ROW ONE IRDWN = 3 TWO IRDWN = 5 THREE IRDWN = 1 FOUR IRDWN = 4 FIVE IRDWN = 1 SIX IRDWN = 2 SEVEN IRDWN = 1 EIGHT IRDWN = 0 NINE IRDWN = 0 TEN IRDWN = 0 If you use some of the free to try option backtesters (ORATS or CML https://tm1.cmlviz.com/login.php) You can test for yourself how well different monthly or weekly option strats would have done on these ETFs. Hint: Try bear call verts selling 80 delta calls/ buying 40 delta.
I’d go for near ATM or ITM, which may be similar to what Option_Attack suggested. (selling call spreads is equivalent to buying put spreads) But I’d definitely wait for VIX to spike above recent high or generally above average, because there is no need to rush with LEAPs while when VIX does spike up then you’ll see that you’re losing on the LEAPs and will wish you’d waited.
Can someone educate me on the UVXY I dont understand how the stock price went from the hundreds of thousands to the twenty dollar range I know it is something to do with reverese splits but can someone please further explain to me how this is I really am confiused
There is too much too explain, while the explanation will be different depending on what you already know about VIX, options, contango, etc. If you already know about all those then you’d already know the answer to your question, otherwise any answer will lead to more questions. There is plenty of info online, so you may want to use Google to research this. Though here is basic explanation: 1. UVXY and TVIX work like insurance against market pullbacks and crashes, and like every insurance they are designed to lose money unless something bad happens (in the market). You’d never buy health insurance, car insurance, or house insurance for the purpose of making money. In fact, they move just like UVXY and whatever you’ve spent on various insurance through your life may never be recovered. The more you spend on insurance the more you lose over time. Thus usually the insurance sellers make money (in this case shorting UVXY or TVIX), unless something bad happens. 2. UVXY and TVIX are tied to VIX index in such way that when VIX moves up or down by x%, they move up or down by multiple of x. For example when VIX goes up or down by 2%, TVIX goes up or down by twice as much: 4%. And because VIX always moves in ranges (never goes up or down indefinitely), UVXY and TVIX will always end up losing value. For example when a stock goes up from $100 by 10% to $110 and later goes down from $110 also by 10%, it ends up at $99. And there you go: it has no choice but to lose more value the more VIX moves up and down. Or when VIX is in decline, it may lose x% every day until it loses so much value that it cannot recover even when VIX goes back up. Only when VIX goes up for a while, UVXY and TVIX may gain a lot of value through compounding, but that value quickly evaporates on the way back down. Especially in case when TVIX may go up by 50%, say from $100 to $150, it would later need to lose 50%, which would take it down to $75, that is 25% below where it started. (though compounding and other factors affect the exact movement of such ETFs/ETNs)