ProShares Trust Ultra VIX Short (NYSEMKT:UVXY)

CAPS Rating: 1 out of 5

Recs

6
Player Avatar bbmaven (100.00) Submitted: 5/7/2013 1:05:24 PM : Underperform Start Price: $229.52 UVXY Score: +18.86

The volatility ETF's or ETN's (TVIX, TVIZ, VXX, UVXY, CVOL, VZZB and some others) are based on VIX futures - some short term, some longer term. When volatility is high, they will spike. However, that averages around 10% of the time over the course of a year. When volatility is low, it costs the funds a great deal to continue to roll both the short term and longer term futures. When the longer term futures reflect more volatility than the shorter term futures (which is true about 90% of the time, resulting phenomenon is called contango - UVXY will go down even if the vix stays static. The reverse is called backwardation - but is usually short lived.

In essence, each of these as long term investments are horrible - they WILL go to zero eventually. In fact, they are designed to do so. They are the safest short on the planet except for one thing - when the spikes occur, it is tough to maintain the shorts as the shares become extremely difficult to borrow. If one is over allocated, the margin requirements become severe. And there is a good chance that one's short can get closed out at the worst possible time.

This is not a problem in the CAPS game. Each of these will go down in the long term - GUARANTEED. When ETF's and ETN's get down into single digits, they often do a reverse split to continue trading. UVXY did its 1:10 reverse split on 09/07/12. I expect it to do another reverse split during 2013.

Report this Post 2 Replies
Member Avatar Flygal5 (98.93) Submitted: 7/1/2013 5:04:33 PM
Recs: 0

I appreciate you taking the time to explain these and why they are so bad long term.

VZZB comes up as ticker not found. I am not sure if it is still out there but it is not coming up in CAPS today.

Member Avatar bbmaven (100.00) Submitted: 7/3/2013 11:54:57 AM
Recs: 0

You are right Flygal5. VZZB was delisted in March - I should not have mentioned it in this pitch. There are a couple of other volatility tickers not listed above - VXZ, VIIX, VIXM, VIXY,XVZ. I have lost track whether I am playing all of them or have decided not to reup on some of them because they are so thinly traded. Good luck.

bbmaven

Featured Broker Partners


Advertisement