How to go long UVXY

While most traders recognize the slow dependable grind lower of UVXY’s price, they would rather take a buy low, sell high, limited risk trade with long shares or options. While most of the UVXY longs I’ve interacted with on Twitter have net losses, those that win often choose one of these methods:

  • Going long an inverse like SVXY or SVIX. This trade can only go to $0 so there’s no threat of the undefined risk common to shorting. The problem with the inverse tickers is their severe under-performance relative to the actual move.
  • Maintain tight stops. Since timing is your primary challenge, when the market tells you that you are too early and price drops, get out quick before a much larger hit to your capital can occur.
  • Pay for you longs with shorts. There are many ways to do this with ratios, short Puts, extra short OTM Calls, various spreads, etc. The risk here is that you were not only wrong, but very wrong with your timing and/or direction, only to have your shorts cause more damage than your long.
  • Wait for an event setup. This could be a binary event or a period of market uncertainly that is just getting started. The probabilities for large moves increase on the back of a strong moves already made.

It is imperative to study the life-cycles of the volatility spikes you are trying to capitalize on. How long do they last? How fast to they drop back down? What is my real opportunity? What are my real risks? Trying to project where VIX might go using the same technical analysis tools used for equities rarely produces accurate results. There is almost 20 years of VIX history over some extreme conditions to form a solid basis for expectation.

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