Home > Markets > ETFs > Shorting UVXY, TVIX, surviving, and profiting

Shorting UVXY, TVIX, surviving, and profiting

  1. 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.


  2. UVYX/TVIX raised 300% enough to cover this risk?

  3. 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!
  4. 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?
  5. 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.
  6. 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
  7. interactivebrokers S2007s
  8. 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.
  9. 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
  10. Four, exactly four.
  11. It's like you don't realize the absurdity of what you're doing. Imagine if everyone here started four threads for every question they had. It would be impossible-to-read chaos. In your case it's even worse since there are so many vix threads that are already up and running. Don't be selfish.
  12. I don't think you realize the import of what I just said.
  13. Great then...and apologies for my previous (and unnecessary) post.

  14. I was reading recently that shares to short are almost impossible to find!!!
  15. So I found the split history on TVIX ...it's split a total of 5 times ...doing quick math that would put TVIX at a presplit price of approx: $2,355,000 a share!!!!!!!

    I think this last surge has given TVIX a bit more breathing room....I'm looking to get in but of course this has to be timed perfectly...I wouldn't look to buy now, however this could spike to $20+ if the vix continues its surge....waiting for the VIX to collapse back below $12 and TVIX under $6

    Event Dates Split Ratio Inception / close price right before reverse split (split adjusted) Months since inception /last split
    Inception 29-Nov-2010 100 (25,000,000)
    1st Rev. Split 21-Dec-2012 10:1 0.9 24
    2nd Rev. Split 30-Aug-2013 10:1 1.68 9
    3rd Rev. Split 23-June-2015 10:1 0.75 22
    4th Rev. Split 9-August-2016 25:1 0.92 14
    5th Rev. Split 16-March-2017 10:1 3.84 8
  16. Yep S20075, it and UVXY both are down like 99% since inception. They could definitely spike a bunch more though - they are up again after hours.

  17. Yes 99% and still open for business....I have timed TVIX wrong a few times...last time was March 2016....that's the last time I traded it....I was actually looking to buy around 5-6 weeks ago but thought the same demise would take place just as it did last time I bought at that same level...
  18. Some amazing after-the-fact analysis... you should be writing for Bloomberg.

    If you would have posted this 2 weeks ago I would say great job underlying the risks... now you're just repeating common knowledge.

  19. Its almost like you read one or two lines into my post, then your ADD kicked in, and you spazzed out and decided you had to post something right away. I didn't just "underly" the risks, I posted thoughts as to how one might deal with them and potentially still make good money. Have anything relevant to contribute, toadie?
  20. I have stated all these things in the past mate...

    Posting it now is just saying the obvious... "look out, because when the VIX jumps you can get wiped out ..."... that literally happened in the past 4 days.

    Anyhow, VIX calls are usually quite expensive, ATM implied vols sit normally at about 80-100 and OTM calls are upwards from that. And I think the 40 call wouldn't really make a big dent since they don't tend to get ITM. That's because they are not based on the VIX index, but the forward vols... which are the futures. It doesn't move as much as the index.

    Although there will be a part that's hedged... that 5k in options will likely only cover about 50k. You would do better if you have calls that are closer to the ATM, maybe 25% out... that way the delta will kick in sooner and actually protect something. Will also work better at smaller spikes.

    But yes... something in place is better than nothing.
  21. That's also the reason why your June 20 VIX calls didn't work out very well... they are based on the June Futures which didn't move much compared to front months... went from 15 to 18.50 now. Those probably still doubled in value... but really wouldn't make a dent in any losses.

    So before you're trying to be all-knowing and trying to give hindsight advice to others... get your facts right and maybe lay down your whole story in one thread in stead of 5 different ones, so people can actually give decent info.
  22. Thank you JackRab! Will think what you said through, mainly about the part where the VIX calls are not based on the VIX index, but instead the VIX forward vols (futures). I realize that is the case for determining the purchase price, as there is really no VIX underlying. But if I have a VIX 40 March XX Call, and March XX rolls around and the price of VIX (open or close, or something in between - not sure what is relevant) is $45, doesn't that mean I'm entitled to a $500 (($45 - $40) * $100) payment? Or do I somehow have to look to VIX futures at that time?


  23. Hahaha, OK. You mistake me asking for thoughts as trying to give advice! I am doing anything BUT trying to give advice, trying to get it. Will do. :)

    Yep, I didn't think about the June 20 VIX calls being European style, meaning they wouldn't move nearly as much. Glad this thing happened - that is a key point!

  24. I love selling short UVXY, but stupid Etrade and Schwab keep cancelling my orders or saying they don't have shares available for selling short.
    (I think eventually Barclay is going to close the time decay issue
  25. I doubt any call can hedge the short 2x vix etf risk when we are talking about possible 15x 1500% potential lose back in 2008 crisis and we just experience the 100% vix jump in a day.

    If a crisis is really coming, the call may works for awhile but then call would expire, you would need to buy another one but may be so much more expensive in crisis period.

    There is no way anyone can have 1500% cash in account to prevent margin call.

    2018 crisis could be much bigger than 2008, so could be a 2500% lose? How to prevent this kind of margin call
  26. If you trade March options you have to look at the March Vix Futures. That's the underlying... not the VIX. Eventually the March Futures will move towards the VIX index level... but that will take untill the exact expiry.

    VIX index is based on the 30 day IV's of the SPX options... since it's a measure of the 30 day variance.
    March Vix futures are based on the forward vols of the period between March and April. Only at expiry of the March futures, the VIX index and the March futures are based on the same SPX implied volatilities.... which are the IV's of the SPX April options (30 days till expiry).

    Usually the front month of the SPX options are lower than back months... this causes the downward roll in the futures. Feb < March < April... High real volatility means the SPX options are bought, causing IV's to rise... but mostly in front month options. So contango turns into backwardation for the first few months. VIX index rises most... the futures less... the further out, the less they rise. So your June future hardly did anything compared to the front months, since it was already higher due to contango... and turning to backwardation caused the Feb futures to rise significantly... March less.. April even less etc.

    This usual contango situation also means that the VIX options further out have fairly high prices of (OTM) calls... because the ATM is actually quite a bit higher than the spot VIX is.

    A March 45 call might eventually be helpfull... but even if VIX is now at 30 or 35, the March future wouldn't be much higher than 25-28. It will creep up if the spot VIX stays high... but meanwhile you're paying a decent theta on those options, since the IV of VIX options are significant. Usually it's about 80-100... now it's 180. That makes it expensive... you're daily loss due to theta is quite high.

    Looking at the March 45 call, it went from 0.15 to 1.00+... but collapsed again to 0.45 now. And most of that gain is because the IV of those options went up from 100 to 180... if that normalizes it's pretty much a useless call option. Too far out, too expensive. It might work for you if we get something like another GFC.. but this small crash the last few days wouldn't give you the decent hedge you would need to cover almost a total loss in those ETN's.

    To cover your 200k loss in the ETN, you would need at least 20k worth of those calls at 15 cents a week ago. Which means you'll lose on your strategy of making 15k in the ETN.
  27. And how do you think they will do that? They can't... since UVXY and all other VIX ETN's are based on 30 day forward vols, which means it needs to be a mix of 2 different futures... which usually are in contango... which causes your 'time decay'.

    It's the way those ETN's have to be designed. At the moment, the decay is actually reversed, since we're in backwardation in the Vix futures. So if we stay in backwardation, shorting UVXY or any long VIX ETN will lose money consistently on a daily basis.

  28. Thanks a ton JackRab! I'm still thinking through your very informative post. But let me ask a simple question. Let's I have bought a VIX 40 call for the very nearest expiration date (I think one was today, so let's say Feb. 14th, which I think is the next one). VIX goes through the roof tomorrow. So, let's talk about movement above 40. Granted, it won't move quite as much as my UVXY or TVIX short (even assuming I've bought an appropriate # to cover the underlying amount), since the maturity is a week or so out. But shouldn't it be *pretty close*, since it is (i) very close in time, and (ii) for people trying to cover, it is probably one of the best things they can buy to cover?

    So, let's play out the two scenarios. One is the VIX spikes literally to like 100 or 200 for a day, then drops back real fast. So tomorrow it spikes to 200, all is lost in UVXY and TVIX theoretically speaking, but wouldn't the very temporary spike in my call (assuming I've bought the right #) cover it in large part? Or shouldn't it? So I'm for a split second, or for a day or two, down like a billion percent on my UVXY short, but I'm up like *almost a billion percent* on my call? Those are both undone the next second or minute or hour when VIX drops back down to say 35 (and I've lost my call premium if it stays there, as well as the loss from whatever the VIX was previously before the rise as compared to 35, theoretically x2).

    The other scenario is that the VIX spikes to 200, and stays there for an extended period of time before dropping. So, it spikes to 200, my UVXY short is crushed, but offset at least in large part by the very-near call, and February 14th rolls around, and I collect the difference between 200 and 40. I could then leisurely wait for the UVXY to slowly retreat over time no? Of course, it could always spike FURTHER I suppose, which unless I purchased another option would lead to ruin.

    Thoughts? Part of the whole key in this is the pricing of these options - when looking at them today it looked profitable, but you are saying its not, so I will have to look at them again tomorrow!

    Thanks so much!

  29. See my post to JackRab - I think buying a proper # of VIX calls of the very nearest term would (assuming you did the math right and bought the proper #) cover you no matter how high you go. Maybe not if it goes to infinity, but even in a theoretical 2008 crash type scenario. As JackRab pointed out, this may be a money loser, however.
  30. "And how do you think they will do that? They can't... since UVXY and all other VIX ETN's are based on 30 day forward vols, which means it needs to be a mix of 2 different futures... which usually are in contango... which causes your 'time decay'."

    Yea, its bizarre - its an ETF based on the forwards of an index that is based on forwards of the S&P500. Sounds about right? I'm sure I still don't quite have it!

    It's the way those ETN's have to be designed. At the moment, the decay is actually reversed, since we're in backwardation in the Vix futures. So if we stay in backwardation, shorting UVXY or any long VIX ETN will lose money consistently on a daily basis.


    Yeppers - feeling it currently!

    I think what would be applicable to what GloriaBrown is saying is some kind of notional principal contract - "I'll pay you any upside difference of VIX above [40] on such and such a date, and you pay me any downside difference". I use NPC because that is all I can think to describe it.

  31. 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.

  32. Not everyone has the knowledge of how options work so they trade the etf directly
  33. Well, I think that is very foolish. There's just too much risk, as we've seen this week. Trading these vol products without a hedge is ridiculous in my mind.

    And let's not forget much of this discussion has been about hedging the ETF/ETN with VIX options, so options were already on the table.

  34. Happened to me Tuesday morning trying to short the hell out of VXX at $60!!!! Nope couldnt do it...missed out on huge gains!!! Now I just have to wait until the vix collapses to go long VXX under $20!
  35. 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.
  36. If you short UVXY you're shorting a continual blend of front and back month VX futures meaning you also have to hedge both months to be on the safe side and that hedge needs to change as UVXY rebalances.

    For instance, right now it's 23/77% weighted front/back VX so a UVXY short is basically 1/4 short VXG8 and 3/4 short VXH8. Even if you're able to somehow continuously balance this hedge on a daily basis (which will definitely add up fee wise) you're really just buying a blend of synthetic VIX puts on the same months UVXY is using (given simplified put-call parity formula: S = C - P, therefore: P = C - S) but doing it through an instrument you have no control over *plus* the settlement and execution risk of getting called away or some other kind of issue coming up.

    Don't do it.
  37. What is the advanage/disvantageof buy UVXY puts comparing to short uvxy? Never trade option before.
  38. Theoretical unlimited loss potential by shorting UVXY. Buying puts you are limited in your loss to how much money you used to buy the put.
  39. Do you not find that the Beta Slippage caused by the way they rebalance and the leverage that they use make up for it's short comings? With VIX options, you have to be right on all aspects of the trade and moves against you do not work in your favor. Over a month or longer period of time with UVXY as long as vol doesn't constantly stay bid up, it is guaranteed to be lower once vol starts to decline. This isn't necessarily the case for the VIX. I haven't traded VIX options very much though so I would be interested in hearing if you disagree.
  40. But buying put has time decay
  41. 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.

  42. 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?

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