One of the most common inquiries I receive from UVXY traders is asking for advice to help out with mounting losses stemming from a long entry. They typically go something like this: “My average price is $10 but it’s now trading at $6. What should I do?”
Bagholding refers to a losing position that has gotten away from the trader. Initially convinced of a direction but refusing to let go once it has moved hard against them, they choose to hang on in hopes that it will rally and make them whole again. The problem becomes obvious once viewing a long term chart and realizing that if profits aren’t quickly produced, the position will almost certainly result in a loss.
Even with a full understanding of UVXY’s upside and downside potentials, it is impossible for me to offer any actionable advice. While I would personally cut my losses as soon as it was apparent that I was directionally wrong (and pretending for the moment that I’d ever go long in the first place,) I have no way of knowing that a March 2020 sized spike that saved up to 3 years’ worth of bagholding is afoot. Of course while a position saving spike is the exception, there’s always that ‘chance’ it will happen. This is where I typically offer my personal approach to trading UVXY and how long it would take me to make back their current loss using my strategies (like a full year to get back to even if they are down 50%)
The answer to the “what should I do?” question ultimately comes down to the individual trader. Can they put the capital to better use? With better odds? Can they afford to lose more capital waiting for a rally in UVXY’s price? Knowing the pitfalls of angry/revenge trades, will they continue to average down to stay alive and chase a spike?