UVXY Strategy History

Before registering with the SEC, I would share every UVXY trade I made on Twitter to solicit feedback in hopes of learning more and possibly improving my performance. Most often this would illicit more questions than suggestions and a common one was “have you tried X?”, so here is a breakdown of my strategy history.

Strategy #1 – Covered Calls

I began in late 2014 attracted to the persistently high weekly premiums of UVXY, so Covered Calls seemed to be the perfect strategy to take advantage of this. While my implementation wasn’t ideal for the realities of this product (as spot dropped and I needed to sell the next week, I avoided dropping my strike for fear that I’d lock in a loss when it shot back up), I soon learned that my understanding of the product was incomplete. It wasn’t until June 2015 and I had suffered a 50% draw down that it became clear that the decay outstripped the premium collected (at least the way I implemented it). And I’ve also experienced this later on selling naked Puts that turned into large losses. I knew that there was potential in this product with its directional certainty and there must be a way!

Strategy #2 – Vertical Spreads

Licking my wounds from the Covered Call strategy fail, vertical spreads offered  a way to profit from the directionality though the premium collection was dampened (both legs have the same IV so the only game is really the difference in extrinsics). I began selling Call spreads or buying Put spreads (identical risk/reward profile) a few weeks out. I quickly learned that I needed to give these time for the decay to work its magic. This turned out to be very successful through Election night 2016 when it appear I was busted. With each scare, close call, and loss, I’d take the strategy into the shop and see what adjustments I could make to prevent what just happened from happening again. What November 2016 taught me was that I needed to spread out my expirations which lead to the following mechanics:

Use 1/7 of my margin buying power to sell an ATM vertical out to the farthest weekly (usually 7 weeks out). Sell every week regardless of spot. Compound my gains by increasing each week to the full 1/7 of my net liq.

This worked like a dream in 2016 through 2017. Perfect performance would produce 700% TROC per year and I realized over 300% after some of the losing weeks that I had. “Duration is your only hedge” was my common refrain then and still holds true for these verticals on a levered, decaying underlying. I found that a spike of 50% would cause a full loss of one or two spreads out of the seven I had on.

Then February 2018 happened with a spike so large that my 7 weeks were not sufficient duration to return profits. I had no choice to eat it and go into capital preservation mode. Total draw down was in the 60 to 70% range, quite painful given how large I had grown my net liq.

Strategy #3 – Selling Naked Calls

This one had been in the back of my head for a long time, it had it all; no limit to duration by rolling out your position for new credit each time, full exploitation of weekly premiums,  and no underlying shares dragging down your performance. The only issue was how to handle large spikes. I figured that if I bought shares in the early stages of a spike, I could prevent larger losses, keep rolling the Calls as needed to produce gains and offset hedging costs. As it is a scary position to take “unlimited risk!”, I started small and gained confidence. Surviving the March 2020 covid spike of nearly 1200% I had all the tools I needed to make this my core strategy to produce income and the one I still use to this day.